Savings interest rates have slowly been going up in the last few months, and the Federal Reserve has continued to raise interest rates to address inflation.
If you’re ready to take charge of your savings and find ways to earn more interest on your money, here are five options to explore.
While savings interest rates have tentatively increased in the last few months across various financial institutions, this doesn’t necessarily mean your savings account will see a sudden bump in its rate.
If your bank hasn’t made an announcement yet, Maggie Gomez, CFP® professional and owner of Money with Maggie, suggests asking your bank for an increase in the current rate you receive.
Gomez explains some financial institutions won’t immediately deliver a higher rate unless consumers get proactive.
“Later, to be more competitive, they’ll increase their rates more publicly, but I think it’ll be really slow,” Gomez adds.
According to the FDIC, the national average rate interest rate on savings accounts is 0.10% APY as of May 2022. However, several financial institutions pay much more than the national rate.
Jerel Butler, CFP® professional and founder of Millennial Financial Solutions, suggests looking at online financial institutions for competitive interest rates on savings accounts.
“It’s a little bit tricky with inflation going on,” Butler notes. “The best savings option for a typical savings account is an online savings account.”
Quick tip: Glimpse through our best online banks guides or best credit unions guide for options.
If you’d like to see how much interest you’ll earn over time on a specific account, you can use our compound interest calculator to help you. By clicking on “More details,” you’ll get a breakdown of your initial investment, total contribution, and total interest earned.
Most banks earn compound interest daily. Meanwhile, credit unions usually earn compound interest monthly. If you’re not sure about your account’s compound frequency, contact your bank’s customer support.
Butler says you should also take the time to explore other financial institutions and compare different savings accounts.
“This is a great chance to take advantage of the rising interest rate market, and you may be able to take advantage of a welcome bonus at another bank,” adds Butler. “A lot of banks — as a result of the higher interest rates — are running special promotions, too.”
If you find a specific account that provides more compelling offers than your current bank, you might consider switching institutions.
Savings bonds are federally issued debt securities. Lindsey Bell, chief markets and money strategist for Ally, says federally issued bonds are a safe investment option, although there are a couple of things to keep in mind.
“There’s a limit on what you can invest in those. They are also probably a little more volatile than a CD or savings account, so you have to take that into account,” explains Bell.
Butler says building a CD ladder might be ideal if you find a competitive rate and are generally risk-averse. However, if you’re not risk-averse, Butler adds there are more options you should consider first.
CD ladders offer a way to take advantage of higher interest rates on CDs. Instead of depositing all your money into a single CD and locking your deposits for a set time, you’ll split your savings into a mix of term lengths.
Bell suggests sticking to CDs under one or two-year terms. If interest rates increase during the year, a CD ladder provides enough flexibility to buy a new CD once your short-term accounts mature.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. Read our editorial standards.