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Not Getting a High Enough Interest Rate on Your Savings? Here's Your Game Plan

by Maurie Backman | Jan. 26, 2021

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

Someone puts coins into a piggy bank.

Image source: Getty Images

If you're unhappy with today's interest rates (and you should be), here's how to get a better return on your money.

There are various features you might look for when choosing a bank -- great customer service, convenient ATM locations, and competitive interest rates for your savings. In fact, in a recent study by The Ascent, over 91% of respondents said they look for strong interest rates when choosing a bank.

Here's the problem -- these days, savings account interest rates are painfully low across the board. Sure, some banks pay more interest than others, but for the most part, you won't even get a full 1% on the money you keep in savings. If that doesn't sit well with you, that's understandable.

The good news, however, is that you don't need to keep all of your money in a savings account. It's just your emergency fund that needs to be tucked safely away in the bank, where your principal is protected. That's provided you don't have more than $250,000 stashed away (the limit for FDIC insurance), which you probably don't.

Your emergency fund should contain enough money to cover three to six months of essential living expenses. Those include:

  • Housing
  • Transportation
  • Food
  • Clothing
  • Medications
  • Health insurance costs
  • Utilities

It's up to you whether you feel comfortable having three or six months of bills stashed away. If you're secure in your job and don't have dependents, you might aim for the lower end of that range. If you're the sole breadwinner for a family of four, you may want to aim for the higher end. But beyond your emergency fund, here's where you can look at putting your money to generate a better return than what today's savings accounts are paying.

1. An IRA

If you don't have access to an employer-sponsored retirement plan, you can look at putting your money into an individual retirement account (IRA). IRAs let you invest your funds for your senior years, and if you load up on stocks, you could easily generate 10 times the return you'll get in a savings account today.

Of course, the only catch is that with an IRA, you can't access your money until age 59 1/2 without incurring penalties. But there's an exception -- if you put your long-term savings into a Roth IRA, you'll get the option to withdraw your principal contributions (not your earnings on those contributions) without penalty. The reason? Traditional IRA contributions go in tax free, but Roth IRA contributions go in on an after-tax basis, so if you withdraw your principal contributions before age 59 1/2, the IRS won't penalize you because it never gave you a tax break in the first place.

2. A 401(k)

If your employer offers a 401(k), it could pay to sign up. Like an IRA, a 401(k) lets you invest your money so it can do a lot better than it would in a savings account. However, many 401(k) plans don't offer a Roth savings option, and like IRAs, if you withdraw funds from a traditional 401(k) before age 59 1/2, you'll get hit with an early withdrawal penalty. On the plus side, though, some employers match worker contributions to a 401(k) to some extent, so if you participate, you could have free money coming your way.

3. A traditional brokerage account

IRAs and 401(k)s let you save for retirement, which is an important thing to do. But if you want the most flexibility with your money while also snagging a higher return on it, then you should consider investing it.

To do so, open a brokerage account and take it from there. Of course, you'll want to be careful with the investments you choose, and you should know that unlike a savings account, with a brokerage account, your principal is not protected, so you could actually end up losing money. But whereas a savings account today won't even pay 1% interest, if you're savvy and lucky enough, you might score a 10% return on your investment in a brokerage account.

Don't settle for today's low interest rates

While you should definitely keep your emergency fund in a savings account, any money you don't need for that purpose has the potential to earn a higher return. And that's where IRAs, 401(k)s, and brokerage accounts come in.

Of course, you may have noticed that CDs didn't make the list of places to put your money outside a savings account, and that's because today's CD rates aren't much to write home about either. Putting money in an IRA, 401(k), or brokerage account comes with risk, and the former two accounts also come with restrictions. But if your goal is to score a higher return on your money, they're all worth looking at.

These savings accounts are FDIC insured and can earn you 12x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2021.

Two top online savings account picks

Rates as of Feb. 15, 2021 Ratings Methodology
Logo for CIT Bank Savings Builder
Logo for American Express® High Yield Savings Account
CIT Bank Savings Builder American Express® High Yield Savings Account
Member, FDIC Member, FDIC
Rating image, 5.0 out of 5 stars.
5.0 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. = Best
= Excellent
= Good
= Fair
= Poor
Rating image, 5.0 out of 5 stars.
5.0 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. = Best
= Excellent
= Good
= Fair
= Poor
Open Account

On CIT's Secure Website.

Open Account

On American Express' Secure Website.

Read Review Read Review

APY: Up to 0.40%

APY: 0.50%

Best For: No monthly maintenance fee

Best For: High APY

Min. to earn APY: $25k or $100 monthly deposit for highest tier

Min. to earn APY: $0

About the Author

Maurie Backman
Maurie Backman icon-button-linkedin-2x

Maurie Backman is a personal finance writer who covers everything from savings to retirement to healthcare. Her articles have appeared broadly on major outlets such as CNBC, MSN, and Yahoo.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

The Motley Fool has a Disclosure Policy. The Author and/or The Motley Fool may have an interest in companies mentioned.

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

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High APY and low fees

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