You might be feeling great about the fact that you’re saving money. However, if you’re storing that money at an average bank or credit union, the interest you’re earning is likely dismal.
ValuePenguin reports that the most common interest rate on savings accounts is a paltry 0.01 percent. That’s just 10 cents per year on every thousand dollars you save.
It’s hard to get motivated to save money when you’re not getting rewarded in return. So how can you earn more interest on your savings?
Earn More Interest on the Money You Save
Luckily, there are ways you can earn more interest on your savings. Check out the list below, then decide which one(s) you’ll use to make your money work for you.
1. Open a High-Interest Online Savings Account
As I mentioned earlier, local banks aren’t paying much in the way of interest on savings accounts. However, there are online banks that are paying much higher rates.
In fact, online banks such as CIT Bank are paying up to a 4.05% APY on savings accounts. In addition, they only require a $100 minimum to open an account. CIT Bank has rapidly become well known online bank. It has a Trustpilot score of 2.6 out of 5.0.
You might be wondering how online banks can pay so much more in interest than traditional banks. One reason is low overhead. Online banks don’t have to pay for maintaining physical branch locations.
They take that cost savings and give it back to customers in the form of higher interest returns. Online banks typically have a few different savings options for most levels of savers, too.
Some might require a minimum balance. Others might give you an option to make an automatic monthly deposit into your online savings account. Most online banks have options that fit savers on nearly every type of budget.
Online savings accounts are easy to access via the internet, too. Want to transfer money from your online savings account to your local checking account? Online banks are set up to securely help you do that.
Once you’ve opened your online savings account, there are a few other ways you can earn more interest on your savings.
2. Invest in Peer-to-Peer Lending
Peer-to-peer (P2P) lending, also called crowdfunded lending, can help you earn more interest on your savings. It works like this:
- Regular people like you and I fund all or part of the money for a loan a person needs.
- The borrower makes monthly payments plus interest.
- Peer-to-peer lending members get paid some of the interest the borrowers pay as they make payments.
That’s the short version of how P2P lending works. Now, here’s a more detailed explanation. Underwriters at qualified P2P lending companies like Lending Club thoroughly screen borrower applications, just like a regular bank does. As a member, you have a choice to invest in an approved borrower’s loan.
These companies also help you as an investor identify risk. Lending Club does this in part by providing grade assignments to potential borrowers. An “A” grade borrower might have excellent credit, while an “E” grade borrower might not.
You can choose which loans you want to help fund. Lending Club also has an automated system where they’ll choose loans for you to fund based on criteria you provide.
All P2P lending companies work a bit differently. However, the premise is the same: You help fund loans for borrowers and earn a higher rate of interest as they pay.
As with all investments, there is a risk of losing money when you invest in P2P lending. If one of your borrowers decides not to pay, you could lose money on your investment.
However, you also have the potential to earn a much higher interest rate. Lending Club, for instance, reports historical returns of between 3% and 8% on average per year for investors.
If you’re looking for a way to help people and potentially earn higher interest, investing in P2P lending might be for you.
3. Invest in Real Estate Via Crowdfunding
Investing in real estate might seem out of reach for the average saver. However, have you looked into crowdfunded real estate investing?
Crowdfunded real estate investing is similar to crowdfunded lending. Groups of people pool their money to invest in rental properties that would otherwise be out of reach. Large purchase prices prevent many individuals from buying them outright.
Crowdfunding real estate sites give you several ways to invest.
There are several benefits to investing in crowdfunded real estate. First, you don’t have to have as much money to get started. Buying a rental property typically costs hundreds of thousands of dollars.
With crowdfunded real estate investing, you can get started for very little. Many companies have investment minimums of about $500 to get started.
Second, you don’t have to worry about buying, selling or managing properties. You invest the money and let real estate experts do the rest.
The crowdfunding companies choose the properties, pay for them and manage them. They deal with tenants and repairs.
You simply choose your investment, buy and hold. As with other investments, there is a risk of loss. However, the potential interest gain is higher as well.
I’ve been investing in crowdfunded real estate for about six months now. So far, my average annualized return is 6 percent.
This is much higher than what I’d earn with a typical savings account. If you’re looking to potentially earn more money on your savings, this could be the option for you.
It can be a great way to take part in real estate investing without all of the money or the hassle.
4. Invest in Bonds
When you buy bonds, you’re loaning a specific amount of money to the issuer. The issuer might be a corporation, or a city municipality or the federal government.
The issuer borrows the money for a specified time period with the promise of paying you back with interest. At the end of the time period, the bond “matures” and you get what you paid plus interest.
Companies like Worthy use investor money to buy fully secured bonds for companies. It’s a crowdfunded type of investment, sort of like Lending Club.
Worthy pays you, the investor, an interest rate of 5 percent (currently). Worthy has a minimum investment threshold of just $250. This makes it doable for almost any level of investor. And Worthy is open to accredited and non-accredited investors.
As with any investment, there is a potential for loss. Businesses do fail. However, companies like Worthy purchase the most secure types of bonds.
Those bonds are fully secured by liquid assets. This makes them less risky. Other types of bonds are unsecured or partially secured.
Bond investments are available through all types of investment firms. However, most firms will charge fees of some sort. Worthy doesn’t charge any management or other fees.
Note: Worthy has a round-up option as well. It rounds up purchases from your checking account. For instance, on a $2.50 purchase, it would round up to $3 and put 50 cents into your round-up account.
Once your round-up deposits reach a $10 total, Worthy purchases a bond share for you. This feature can be a great way to save and invest more money effortlessly.
5. Set up a CD Ladder
Have you heard of the term CD ladder? A CD ladder works like this: You take your savings and divide it up. Then you invest it into several CDs with different terms.
The longer the term, the higher the interest rate generally. For instance, at the time of publishing, the best rate for a five-year $2,500 CD is about 3.1 percent, according to Bankrate. For a one-year CD of the same amount, the rate is 2.75 percent.
The goal with a ladder is to invest in CDs with varying terms, so that your investment is more liquid than if you just invested in a five-year CD.
Here is an example of how you could set up a CD ladder strategy.
Start by Determining How Much You Want to Invest
Determine how much cash you want to invest in CDs. Note that most CD specials have a minimum deposit requirement of $2,500. Some banks do offer CDs for $1,000, though.
Determine How Many CDs You Want to Purchase
Next, you’ll decide how many CDs you want in your ladder. Five is a good number to start with, but you can buy more or fewer.
Remember that the more rungs on your ladder, the more fluid your investment plan can be.
Deposit the Money into Varying CD Terms
Now you’ll want to purchase CDs with varying terms. You can do this using one bank or several.
You may want to visit a few bank websites to find specials with varying terms and rates. CD specials usually offer promotional interest rates that are higher.
As an example, let’s say you’ve got $12,500 you want to use for your CD ladder. You could divide them up like this:
- 1-year CD term
- 2-year CD term
- 3-year CD term
- 4-year CD term
- 5-year CD term
Choose the terms for your CDs based on your risk tolerance. The goal is that you’ll have CDs coming due regularly so you have extra cash available regularly.
You’ll have the money locked away, but available at regular intervals as need be. And all this while earning the higher interest rate that CDs often pay.
You’ll want to ensure you don’t lock all of your savings away in CDs. Keep some in a savings account for quick access to emergency cash. A savings account specified as an emergency fund is great for this purpose.
Another benefit to CD laddering is that you continually have money becoming available to reinvest. That way you won’t miss out on higher rates if the market should change for the better.
And if you’re choosing to take your CD interest earned as cash, you’ve got cash coming regularly, too. Bonus: Since bank CDs are secured by the FDIC, your risk is minimal.
A CD ladder can be a great investment strategy — especially for those who have a low risk tolerance.
Summary
Bank savings accounts often pay dismal interest rates. However, there are ways you can earn more interest on your savings.
Online savings accounts can offer very attractive interest rates. CD specials can as well. Both of these options present a low-to-no risk way to earn more interest on the money you save.
If you want to earn more interest and are willing to take on more risk, there are other options. Investing in crowdfunded real estate or lending can double or triple your profit from what high yield savings accounts pay.
However, that’s assuming your investment choices do well. Bonds also pay more than savings accounts, and they can be more secure than traditional stock market investing. This is especially true if you’re purchasing fully secured bonds like Worthy offers.
But again, the bond purchase option does come with traditional investment risks. You can lose some or all of your principal balance when you invest.
You have to decide what amount of risk you’re comfortable with before going with an investment product. However, the payoff could be earning a much higher interest rate on your savings.
Have you ever used any of the products mentioned above to earn more interest? If so, which avenues did you use for your investment and why.
We’d love to hear about your experiences. Feel free to leave a comment on our Facebook page. And feel free to share this post if you think it would be beneficial to others.
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