Estimate the interest earned on a lump sum investment into a money market account using this calculator. In addition to displaying nominal returns, you can also calculate the impacts of income taxes and inflation on your nominal and real returns. Current market rates are shown directly under the calculator.
Is your bank offering competitive rates which beat inflation and taxes? If not, you may be able to earn a better rate & make your money work harder by shopping around.
The following table lists currently available rates for savings accounts, money market accounts and CDs.
If there is one common thread weaving its way through a review of investment markets during the past decade, it is across the board volatility. During the particularly unstable period, real estate investors learned the hard way, losing equity as property values plunged on the cusp of the recession. Stock market investors faced similar peril as domestic investments weakened, before a worldwide downturn that ultimately impacted foreign funds in similar ways. And while market growth erased losses for investors able to weather the storm, the current climate on Wall Street has many analysts predicting a major correction.
As financial fortunes flounder, struggling investors seek safe refuge from the ups and downs, turning to conservative alternatives for growing investment returns. Traditionally, CDs, money markets, and bonds fit the bill, capable of trickling gains that may not be a fast track to wealth, yet still provide consistent returns. Today, high yield savings and checking accounts furnish additional avenues for investors striving to earn interest, while minimizing risk.
Traditional investing balances risk by spreading holdings across various accounts. Stocks present the greatest amount of volatility, so cash savings are used to offset personal exposure to peaks and valleys experienced in the stock market. In fact, as investors face uncertainty, many lean heavily on savings accounts to protect themselves from losses. Unfortunately, yields are low for money parked in conservative accounts.
When it comes to growing savings, the largest brick and mortar banks generally don't offer the best rates. To keep things in perspective, it is important to note that the FDIC published national rate for standard, non-jumbo savings deposits currently lingers around .06%. In practice, many banks, like Chase, for example, pay even less for deposits valued below $100,000. Despite the minimal returns presented by major banks, there are more profitable alternatives for high-yield savings customers.
Online Savings Accounts
Today's best interest rates are found online. For starters, branch-based banking carries significant overhead, challenging brick and mortar banks to remain competitive with savings accounts offered by online providers with lower operating costs. Although interest rates change frequently, several online banks like First Internet Bank, Ally Bank and Synchrony Bank currently offer interest rates nearing one-percent APY, including Navy Federal Credit Union which leads the way with a winter 2020 rate of 0.7%.
Yields are tied to deposit values, so those with large sums to set aside in savings accounts are incrementally more successful growing returns. Such accounts have minimum deposit levels, and once active, members are required to maintain particular balance thresholds, in order to keep getting the best treatment.
Savings Accounts Should be Backed by the FDIC or the NCUA
Federal Deposit Insurance Corporation protects investors by backing deposit accounts at banks and other institutions. With increasing online competition, savers are cautioned to ensure funds are FDIC or NCUA insured. The FDIC typically covers $250,000 per individual at each institution, supported fully by the United States Government. FDIC covers checking, savings, CDs and money-market accounts. The program does not, however, insure other investment alternatives like mutual funds, stocks and annuities. Since its inception in the 1930's, depositors have not lost money on FDIC accounts. The National Credit Union Administration is a parallel organization which protects saver deposits in credit unions.
Checking accounts are more about convenience than active savings, yet competitive versions enable some investors to have their cake and eat it too. If you meet certain requirements, high yield checking accounts furnish interest rates that keep your balance moving in the right direction, even as you use the account to pay bills. Checking rewards accounts return anywhere from a fraction of a percentage point, to upwards of 2%, when all conditions are met. In fact, one regional bank in Michigan recently reported checking yields as high as 5%.
As is the case with savings accounts, leading national banks are not necessarily the best place to earn preferred rewards while checking. Credit unions and community bank and trusts, on the other hand, extend worthy rates to qualified customers. In order to keep costs down and maximize client returns, institutions offering high yield checking alternatives impose various rules. Common requisites include:
For many account holders, these qualifications reflect modern banking practices, so they are of little consequence. Failing to meet the terms in a given month, however, negates the high yields. Limits are also in place at most deposit institutions, commonly set at $25,000. To make the most of the generous terms, savvy savers keep balances as close to these ceilings, as possible. Though they include checking privileges, in practice, many of the accounts are actually used more like savings vehicles.
In addition to the aforementioned eligibility requirements, some of the best high yield checking accounts are reserved for particular clients. In some cases, for example, depositors must reside in the institution's home state, and at other times, the offers are only extended to existing customers.
Prepaid debit cards represent another available form of investment for consumers seeking alternatives to traditional accounts. Cash back and other incentives offered by card companies rival interest rates attached to traditional bank deposits, in a straightforward format accessible to most parties. American Express recently entered the pre-paid, cash back market, extending the reward for each purchase made with the company's Serve card.
Money market accounts are similar to savings, in many ways, but there are noted distinctions between the two forms of investment. For starters, money markets generally call for higher balances than traditional savings accounts. Making larger deposits and maintaining significant balances both work in investors' favor, earning better interest returns than other conventional alternatives.
To a certain extent, competition from online banks and smaller, community institutions has closed the gap between interest rates offered with various products. High yield savings rival money market rates, in some cases, so it is essential to evaluate returns on a case by case basis. Depending upon the bank, there may be little difference between available rates on the two forms of investment. At the same time, however, money market accounts may offer additional advantages, like courtesy checks, which make them more appealing than savings options.
When comparing investment alternatives, fees and regulations are of particular concern. Withdrawals from money market accounts, for example, are limited to six per month. At some banks, withdrawals are facilitated by checks, which can be used to make purchases directly from money market holdings. When checks are not available, money is moved using wire transfers, which can result in fees, charged for conducting each transaction. Carefully vetting your needs and available resources helps guide your money to the most appropriate type of account.
Upon examination, money market accounts are generally better than savings accounts for depositors with larger sums to contribute, or for those interested in building reserves, without significant withdrawal requirements.
The Federal Reserve controls short-term interest rates, which have long languished at historically low levels. Though signs pointing to a pending rate hike have been numerous, the Fed has not yet acted to bump rates upward. Anticipating the first interest rate increase since 2007, however, prepares investors to make prudent moves with their money.
Typically, for instance, bond returns go down when rates go up. United States Treasury Bonds are most sensitive to rate changes, because they are directly tied to Fed moves and offer little risk. But bond rates are already low, with 10-year Treasury Bonds yielding around 2%. Corporate bond investors face more risk, and variable-rate opportunities also exist, tied to shifting rates and inflation. In order to limit risk without sacrificing moderate returns, investors turn to certificates of deposit (CD).
Like other competitive instruments, the best interest rates for CDs are found online and at local credit unions. Online buys are made easily, and available nationwide. Compared to brick and mortar banks, online options pay many times the rates offered at major, traditional institutions. A five-year product purchased from an online bank might yield as much as 2% APY, while its branch-based counterpart offers only a fraction of a percentage point for a similar CD.
Important characteristics shared by CDs include the following features:
Longer terms lead to higher rates – The period of time a CD must be held before it matures is an important consideration for investors. In simplest terms, 5-yr CDs pay more than 6-month versions, and so on. Investors who nay need access to funds at different points in time should ladder their investments.
Partial withdrawals are not permitted – CDs are all or nothing propositions, so investors should view them in terms of their full value. One cannot, remove funds for short-term expenses and then refund the CD when resources once-again become available. If you may need access to funds in the future you could consider segmenting your savings with some saved in a high-yield savings account, a money market account, or laddering your CD and bond exposure so you have a regular stream of funds which can be either spent or rolled over regularly.
Early withdrawal penalties are in-place – Terms and conditions vary across banks, but the nature of CDs does not allow holders to close them prematurely, without paying penalties. Given the current low-rate environment, eating any of these penalties make it nearly impossible for a saver to keep up with inflation. What's more, the Federal Reserve suggested they are unlikely to lift interest rates through 2023 and in April of 2020 with the COVID-19 crisis going global the Federal Reserve published research which revisited yield curve control efforts in the 1940.
Jumbo CDs present higher-rate options for investors with extensive resources. With deposit thresholds ranging from tens-of-thousands to millions of dollars, in practice, a substantial share of jumbo CDs are sold to institutions, rather than individuals. Like basic CDs, it is important to weigh the benefits of long-term commitments, which may end-up costing you money, when rates rise during your CD term.
Successful investing balances risk and returns, protecting account holders from volatility. In order to offset risk taken-on with stock market speculation, investors turn to bonds, money market accounts and high-yield savings and checking alternatives. In the end, your personal banking needs influence which approach is best-suited for meeting personal financial goals. As you navigate options, look to online resources, which often provide better returns than traditional branch-based institutions.