Higher interest rates aren't great if you need to borrow money, but they present a golden opportunity for savers. When interest rates rise, you can earn more by keeping your money parked with a financial institution or the federal government. If you're looking to boost your savings in 2024, here are three opportunities to earn a high yield on your savings. The best part is, all of these options are extraordinarily safe places to stash money.
High-yield savings accounts
A high-yield savings account is an excellent choice for keeping your emergency fund, as well as saving for short-term financial goals, like an upcoming vacation. You can find plenty of options that don't charge fees or have minimum deposit requirements, and it's incredibly easy to transfer funds between your checking and savings accounts.
The national average yield for savings accounts is just 0.46%, but our picks for the top high-yield savings accounts all pay well above 4% as of this writing -- and some are even north of 5%. If you saved $10,000 in a savings account with a 5% annual percentage yield (APY), you'd have $10,500 at the end of one year. But thanks to compound interest, after five years, you'd have $12,762, even if you never deposited another dime.
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Keep in mind, though, that high-yield savings account APYs can change at any time. Make sure you look at other factors, such as whether you'll pay fees and if customers are generally satisfied with the institution, instead of choosing an account based solely on APY.
Deposits of up to $250,000 per institution per depositor are covered by the Federal Deposit Insurance Corp. (FDIC), which means that even in the unlikely event that your bank goes belly up, the federal government will make sure you get your money back.
Certificates of deposit (CDs)
A certificate of deposit (CD) is similar to a savings account, but you agree to keep your money at a bank or credit union for a certain period of time, often anywhere from one month to five years. Typically, you get the highest yields the longer the term, but things are a bit weird right now. According to the FDIC, 12-month CDs are actually yielding more than those with longer terms.
Why would that be? Financial institutions are likely betting that interest rates will eventually drop. So they don't want to commit to paying higher interest rates for, say, three years or five years if they think rates will drop in the interim.
Some of the best CD rates we're seeing are over 5% for a 12-month CD. The advantage of putting your savings in a CD instead of a savings account with a similar yield is that the institution agrees to pay you that rate for the entire CD term, whereas savings account rates can change at any time. But since you'll pay a penalty on early CD withdrawals, a CD isn't a good place for your emergency fund or any other money you may need to access right away. As with high-yield savings accounts, CDs are FDIC insured.
Treasury bills
U.S. Treasury bills, which represent a loan to the federal government, are widely considered the safest investment on the planet since they're backed by the full faith and credit of the U.S. government. Treasury bills, or T-bills, are short-term Treasury securities that are issued in increments ranging from four to 52 weeks in daily auctions.
Technically, they don't make interest payments. Instead, the yield comes from the fact that they're sold at a discount. For example, if you bought a $1,000 T-bill issued at 3% interest, you'd only pay $970. Then, you'd get $1,000 back when the bill matures.
At the daily Treasury auction on Feb. 16, T-bills were yielding above 5%. Keep in mind, though, that the quoted yield is an annual percentage. So if you bought a 13-week T-bill with a yield of 5%, you'd be earning 1.25% since 13 weeks is only one quarter of a year and 5% divided by 4 equals 1.25%.
You can buy T-bills directly through treasurydirect.gov or through your brokerage or bank. There are pros and cons to each. To save on fees and get more flexibility in terms of how much you invest, it's usually best to buy T-bills directly through the Treasury website. But if you think you may need to cash out T-bills before they mature, it's generally easier to do so using a brokerage account.
Saving vs. investing: Why both matter
Saving money will boost your financial security, and higher interest rates mean you can earn a healthy amount on your savings. But to build wealth, you generally need to invest money in the stock market. Investing in the stock market carries risk, especially in the short term, but investing in a diversified portfolio of stocks has a superb track record of building wealth over time. For example, investing in the S&P 500 would have never produced a loss over a 20-year period in the index's history.
The high-yield savings opportunities described above are good options for keeping emergency fund money, as well as short- to medium-term savings. But to build a nest egg, you'll want to invest in stocks through a tax-advantaged retirement account, like a 401(k) or individual retirement account (IRA).
These savings accounts are FDIC insured and could earn you 11x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.
