Alternatives to Traditional Savings Accounts

Whether you earned a bonus at work or want to stash money away to save for a downpayment on a new home, deciding where to store your money is half the battle. Traditional savings accounts are a solid option if accessibility is your main priority. Still, some alternatives offer a more impressive return on your investment with higher interest rates and relatively easy access to your money. ์นด์ง€๋…ธ์‚ฌ์ดํŠธ

Online savings accounts for January 2023

High-yield savings account
A high-yield savings account is a deposit account that offers a higher interest rate than a traditional savings account, allowing you to earn more back on your savings each month. The higher the annual percentage yield, or APY, the faster your money grows. The APY associated with a high-yield savings account is a variable rate, so that it will fluctuate based on the benchmark interest rate set by the Federal Reserve. The money you put in a high-yield savings account should earn a competitive yield to maximize growth. The best high-yield savings accounts have APYs of at least 2.15%, which is 10 times higher than the national savings account average of 0.21%.

Certificate of Deposit
Certificates of deposit, or CDs, are savings instruments that generally offer higher interest rates than regular savings accounts — but they come with a catch. You have to put money in a CD and agree not to withdraw it for a certain period (referred to as a term), which could be anywhere from a few months to 10 years. You’ll incur a penalty if you take money out of a CD before it reaches maturity or the end of its term.

When you open a CD, the bank agrees to leave your money on deposit for a set term at a fixed rate. If you’re saving for a specific goal with a set timeline, don’t commit to a CD that extends past when you need to withdraw. On the flip side, select a longer term if you are looking for a means to earn a higher interest rate and can afford to tie your money up for an extended period.

Money market account
A money market account, or MMA, is a savings account that earns interest based on how much is in the account. These accounts have higher savings rates than standard savings accounts, but they tend to require a minimum balance to earn interest — sometimes upward of $500. MMAs provide account holders with flexible access to funds through a debit card and checks like a checking account. MMAs earn a variable interest rate, meaning it fluctuates based on market conditions.

Short-term bonds
Short-term bonds have a maturity time of one to four years. Upon maturity, the issuer must pay back the bond’s face value, as well as any interest that has accumulated. You won’t necessarily lose money on a bond, but there’s also a chance you will only see gains or losses depending on market conditions and the movement of interest rates. The rate of return on a bond is typically fixed or floating โ€“ meaning the issuer agrees to pay a specific amount of interest, or the interest adjusts in response to the prevailing interest rate. Short-term bonds provide a safe and secure investment with a moderate return and are usually FDIC-insured. ์•ˆ์ „ํ•œ์นด์ง€๋…ธ์‚ฌ์ดํŠธ

When should I put money in a savings account?
Different types of savings accounts are better for different savings goals. For example, a high-yield savings account is low-risk and liquid, but you can’t withdraw your money for up to seven days. A money market account is more locked down than a high-yield savings account, so it may not be suitable for short-term savings goals, but it can earn you a higher interest rate.

Alternative savings account options have the potential to earn more than a traditional savings account, but there are associated risks to consider. When selecting an alternative savings account, consider the APY, term length, interest rate, funding options and early withdrawal fees.

The bottom line
Before you decide where to put your money, take time to determine your goals. Do you need easy access to your money? Do you have a specific time frame to save for? How much risk are you willing to take? Once you’ve determined your goals and what is most important, you can find the right savings vehicle.

Overdraft Fees vs. Nonsufficient Funds Fees: What’s the Difference?

If you’ve spent more than what’s available in your checking account, you’ve likely been charged an overdraft or a nonsufficient funds fee. The two terms come off as interchangeable, but they’re not. While banks and credit unions cannot charge both an overdraft fee and an NSF fee on the same transaction, incurring even one of these fees can be costly.

What is an overdraft fee?
Banks charge overdraft fees when you don’t have enough money in an account to cover a transaction. Instead of declining the transaction, the bank covers the payment and charges you an overdraft fee. For example, if you purchase an item for $50 and only have $25 in your checking account, the bank will approve the transaction and charge you an overdraft fee plus the amount owed.

How much do overdraft fees cost?
According to the Federal Deposit Insurance Corporation, the average overdraft fee is around $35, but fees can range from $10 up to $40, depending on the bank. ์นด์ง€๋…ธ์‚ฌ์ดํŠธ ์ถ”์ฒœ

What is an NSF fee?
Banks charge a nonsufficient funds fee when a payment doesn’t clear because you don’t have enough money in your checking account. In this case, the bank doesn’t approve the transaction. An NSF fee may result from a bounced check or denied electronic bill payment. Let’s say your utility bill is paid automatically from your checking account each month, and you don’t have enough to cover the bill. The payment will be denied, your bank could charge you an NSF fee and your utility company may charge you a late payment fee.

How much do NSF fees cost?
NSF fees range from $10 to $40, but according to the Consumer Financial Protection Bureau, the average NSF is $34.

What is overdraft protection?
Overdraft protection is an optional feature offered by banks to prevent the rejection of a charge on a checking account with insufficient funds. If you opt for overdraft protection, the bank will automatically cover the transaction by moving funds from a linked savings account or line of credit to the overdrawn account. The bank may charge you a transfer fee, but this fee is often much less than an overdraft fee. Online banks tend to offer free overdraft protection, but standard banks charge roughly $10 to $12.50 per transfer.

What is the difference between an overdraft fee and an NSF fee?
Your bank may charge an overdraft fee to your account if you do not have enough funds for a transaction, and the bank covers the charge on your behalf. An NSF fee is charged when your account is overdrawn, and the bank declines the transaction.

How to avoid overdraft and NSF fees
Overdraft fees and NSF fees don’t have to be a common consequence. There are a few steps you can take to avoid them.

Enroll in overdraft protection
Participating in overdraft protection can help you avoid overdraft fees by moving money from a savings or other financial account to help cover a charge made to your checking account. This service generally isn’t free, but an overdraft protection transfer charge is typically more affordable than an overdraft fee.

  1. Sign up for low-balance alerts
    You may be able to receive low balance alerts from your bank’s mobile app, so you know if your account balance is dropping below a certain threshold.
  2. Find a bank that doesn’t charge overdraft fees
    Look for a different bank if you aren’t happy with your bank’s overdraft or NSF fee policies. Some banks are shifting away from overdraft and NSF fees altogether, including Capital One, Bank of America and Citibank.
  3. Stay on top of your balance
    Keep an eye on your balance, deposits, transactions, withdrawals and automatic payments by regularly monitoring your account. Note any upcoming payments or pending transactions that may not automatically reflect on your account’s balance in real time.

The bottom line
Overdraft and NSF fees can add up quickly if you’re not careful. Being mindful of your finances and setting up low-balance alerts can help you avoid these fees. Additionally, linking multiple accounts and considering optional overdraft protection can help you stay on top of your finances and avoid costly fees.

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