When it comes to banking, many consumers spend a considerable amount of time hunting down and choosing where to bank based on fees and their locations.
However, when it comes to savings, too many people often don't put in as much effort. Without much thought, they end up opening plain-vanilla savings accounts offered by the bank they choose for their checking accounts. This approach can result in the saver missing out on opportunities to get the most out of their savings efforts.
Putting aside money in savings accounts without much thought often helps the bank line their financial coffers. They're in the business to make money, and they do so largely via interest rates they assess on mortgages, car loans, etc.
So, shouldn't you also look at interest rates in determining how they can help grow your savings? Absolutely.
Those who want to get the best returns on their investments tend to seek out savings vehicles that offer the best interest rates. This can include typical savings accounts, but there are many others that should be considered.
Interest rates make all the difference
Interest rates are the crux of investors' savings strategies. Savvy investors understand the best way to maximize their returns is to choose vehicles that offer the best interest rates on deposits.
While it may seem that finding an institution that offers the best interest rates for savings account is to do a Google search, there's far more to it than that. As noted above, banks rely heavily on interest rates as part of their strategy to make money. Look no further than how their stock prices move higher or lower based on the Federal Reserve's hiking or lowering interest rates.
As a saver, you should also watch the Federal Reserve's interest rate movements, but understand that a hike may not automatically translate into a boost to your savings. CBS News reports that although the Federal Reserve boosted over 2018, most savers have yet to feel the impact.
For example, around mid-December, following a Fed rate hike, the highest advertised rate was .06%. It was offered by Bank of America to its Rewards Savings account holders.
A $25,000 deposit would generate a mere $15 during of interest over one year, before taxes, CBS News noted. It added that most traditional banks have "stubbornly kept interest rates low on savings accounts while they happily increase rates on loans."
A deposit of $25,000 would generate $587 in one year, compared to $15 at Bank of America, reports CBS News.
Online banks are changing savings landscape
Many traditional banks try to lure customer to sign up for their checking accounts by offering them no-fee savings accounts. They dangle the interest rates they offer, as noted above about Bank of America, to sweeten the deal.
If you are not married to that particular bank handling all your banking needs, consider non-traditional banks. This includes online options.
CBS News found that online banks are upping their options because they are in the midst of a pricing war "that shows no sign of slowing down."
In a report, CBS News states:
And if you are willing to experiment with smaller or lesser known bank brands, it is possible to earn 2.35% percent or more. Synchrony Bank, Marcus (by Goldman Sachs) and Barclays are all well-known names offering 2.05 percent. Synchrony is a publicly traded company that offers private label credit cards for brands like Amazon.
Others like MidFirst's Vio Bank offer an online savings account that pay as much as 2.35% APY. Also appealing are the minimum amounts needed to open one of their savings accounts. At some, it's as low as $100.
American Express is infamously known as being for the wealthy. However, it offers a savings account option that may surprise you. The offering earns a 2.10% variable APY. The variable rate option gives savers the flexibility of earning higher interest rates.
There are no minimum deposits and no monthly fees. A caveat is that the account holder must fund it within 60 days of applying.
Life insurance and saving
When most people think about life insurance they see taking out these policies to provide financial comfort to their loved ones, or beneficiaries, when they pass away. Life insurers also provide options to help people while they are alive.
Take whole life and permanent life insurance, for example. Policyholders can borrow against the cash value account of these policies to cover expenses as they see it.
These policies come with cons, however. Adam Cecil broke it down for Policy Genius, saying:
Put money into a whole life policy for thirty years, and at that point, you'll have an asset that you can play around with or use to fund your retirement. But whole life insurance often doesn't work out that way for consumers, and at the end of the day, it's a bad way to force yourself to save.
Observers say life insurance policies are best for those who've maxed out other retirement-savings accounts, such as 401(k)s and individual retirement accounts.