5 Alternatives to Savings Accounts

If you want to save money to renovate your home, buy a new car, or go on vacation, a savings account is one option. It's also a good place to save money for an emergency fund or college fund.

And while savings accounts are usually good places to keep money that needs to be accessed regularly, they're not the only option. There are alternatives to savings accounts that earn interest and give you relatively easy access to your money. Explore all your savings options, from high-yield checking accounts to certificates of deposit (CDs), so you can choose the ideal savings solution for your needs and goals.

Certificates of Deposit (CD)

or CD is a type of account where you keep your money for a certain period of time to earn a certain amount of interest. When you open a CD, you must make a minimum initial deposit and select the term of the CD. The CD term is the length of time you agree to keep your money in the CD. Although CD terms vary by lender, they typically range from three to five months, and sometimes even .

Generally, the longer the term of the CD, the higher the interest rate. Some lenders offer shorter-term promo CDs that come with higher rates. Since CD rates are almost always fixed for the entire term, you can easily calculate how much interest you will earn by the end of the term. The downside, however, is that you'll be on the hook for an early withdrawal penalty if you need to pull the money out of the CD before it matures.

Although a CD is less liquid than a savings account, it can often provide higher returns. For example, the national average interest rate for a one-year CD in September 2024 was 1.88%, and the national average interest rate for a savings account was 0.46%.

You can think of them as hybrids between checking and savings accounts. Once you open a money market account, you can write a certain amount of checks each month and even make purchases with a debit card. The main advantage of a money market account is that it usually earns a higher interest rate than a checking or savings account.

For example, the national average interest rate for a savings account in September 2024 was 0.46%, but the slightly higher national average interest rate for a money market account was 0.64%, according to the FDIC.

You may have to meet minimum monthly deposit requirements or pay maintenance fees with a money market account. Also, there will be a limit on how many transactions you can make each month. Most money market accounts allow only six withdrawals, account transfers, debit purchases or check payments per month. If you exceed this limit, you may be charged a fine.

High Yield Checking Accounts

High-yield checking accounts offered by online banks, which are often high-yield savings accounts, are also places to build an emergency fund or work toward another financial goal. They are also traditional checking accounts that pay interest. To qualify for the highest rate, you must meet certain requirements that vary by bank or credit union. For example, you need to make a certain number of debit transactions per month and sign up for online banking. On the other hand, some high-yield checking accounts may offer benefits such as direct deposit or early access to your paycheck with all ATM fees paid.

may offer interest rates comparable to savings accounts. For example, in October 2024, Paramount Bank offered an interest checking account with an annual percentage rate (APY) of 2.50%.

Treasury bonds, bills, notes, etc

(sometimes called Treasurys) are fixed-income securities issued and backed by the federal government. They are often considered some of the safest investments you can make.

These Treasury investments come in terms of four weeks to 30 years, depending on the bill, note or bond. They are usually sold in increments of $100, for example, on TreasuryDirect.com. Interest rates will vary, but are competitive with others on this list. For example, the interest rate on a 20-year Treasury bond issued on September 30, 2024 was 4.125%.

Like the other options on this list, Treasury bonds guarantee a certain rate of return, so you don't have to worry about losing money on an investment like the volatility of the stock market. In addition, Treasurys are subject only to federal taxes and are exempt from state and local taxes.

Online Savings Accounts

While not technically an alternative, an online savings account is a different type of account than the one offered at your typical brick-and-mortar bank or credit union. A will typically has the same features and rules as traditional accounts, but has historically offered higher interest rates. This is because online-only institutions have less overhead, so they can charge less. Online savings accounts may also come with perks you can't find at an old-school bank.

However, you must be comfortable with online banking to take advantage of these accounts. You'll likely need to transfer your money from one bank to another through an online account, though check with your account provider to see if there's another way to deposit your money. You also won't have access to in-person services at a local branch, but you can call or chat with customer service online.

Frequently Asked Questions (FAQ)