How To Make Your Savings Work Harder For You - Jaime Bonetti Zel

How To Make Your Savings Work Harder For You

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Earn 3% in a no-fee checking account? I have to admit that when I heard that investing app Robinhood was offering to pay a 3% interest rate on checking and savings accounts, I was pretty intrigued. After all, the average checking and saving account rates are .04% and .06% respectively. Unfortunately, if it sounds too good to be true, it usually is. It turns out that there are questions about whether the accounts will be insured by the SIPC and Robinhood had to backtrack from the offering.

If you’re looking for a safe place to keep your savings cash with decent returns, all hope is not lost though. Recent increases in interest rates have opened up several legitimate opportunities to earn a lot more than .04% or .06%. Here are the pros and cons of the highest paying options I’ve found:

Reward Checking Accounts

Pros: These checking accounts can pay as high as 5.09%. Unlike Robinhood, they are insured by FDIC (for banks) or NCUSIF (for credit unions). They also generally don’t charge maintenance fees and many even reimburse ATM fees if you meet their requirements.

Cons: To get the high rates, you have to meet certain requirements each month like 10-20 debit card purchases, at least one direct deposit or ACH transaction, and electronic statements. Some also require using online banking (logging on and perhaps making online bill payments) or using a credit card connected to the account. Even if you meet the requirements, you can generally only earn the higher interest rate on balances up to $10-25k. Finally, these are typically offered by small institutions that may not have local branch offices near you so you may have to do all your banking remotely.

Other Bank Accounts

Pros: You can earn much higher rates (varies by state) on FDIC or NCUSIF-insured checking, saving, and money market accounts and CDs without having to meet all the requirements of a rewards checking account and there’s often no cap on the balance that can earn this rate. Many of the savings accounts can also link to your current checking account so you don’t have to change it.

Cons: These institutions may not have local branches or even any branches at all (online only).

US Government Savings Bonds

Pros: These bonds are guaranteed by the federal government, do not fluctuate in value, are free from state and local taxes and can earn interest federal tax-deferred (or even tax-free for qualified education expenses). The Series I earn 2.83 (.50% fixed for 30 years plus an inflation component that’s updated every six months). The Series EE only pay .10% for at least 20 years, but after those 20 years, they double in value, giving them essentially a 3.5% annualized return over 20 years (a little more than 20 yr treasury bonds are currently paying with more risk).

Cons: You’re limited to purchasing up to $10k each in electronic Series EE and I bonds each year and up to $5k in paper Series I bonds with your tax refund each year. You can’t redeem them at all in the first 12 months and you lose the last 3 months of interest if you cash them within 5 years. Finally, keep in mind that you have to wait 2 0 years to get the 3.5% interest rate on the Series EE bonds.

Life Insurance Cash Value

Pros: Cash value dividends in whole life policies can be over 6% with minimal risk to your principal. This cash value can be borrowed tax-free and repaid with the death benefit.

Cons: Permanent life insurance can be a lot more expensive than term insurance and that extra insurance cost can easily outweigh the returns on the cash value.

When it comes to earning more on your cash, Robinhood’s offering wasn’t the only game in town. In fact, several of these options can pay more than 3%. Just keep in mind that there is no perfect or even best choice for everyone. The real question is what works best for your particular goals and situation. After all, you want to make sure your money is working as hard for you as you did for it.

About Jaime Bonetti Zeller

Jaime Bonetti Zeller is an investment professional and entrepreneur with businesses in multiple industries. He is president of Servicios Consulares Eurodom, the local partner in the Caribbean region for VFS Global, a leader global outsourcing and technology services specialist for diplomatic missions and governments worldwide. Jaime Bonetti Zeller also started the company Sofratesa de Panama inc., an organization in the engineering services industry located in Panama City.