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Parking all of your money in a checking account? 4 places to look instead for higher returns

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We all know that one person who says they like to keep things simple, thus why they might be stashing all of their money in a checking account.

Well, we’ve got one word for them: Stop.

By doing this, you may be quite literally missing out on hundreds or even thousands of dollars over the course of your lifetime.

You see, checking accounts are a great place to store your money for the essentials as it allows for easy access, which is an important feature for everyday spending needs — but it’s usually not a good saving strategy.

More than likely, your checking account earns an annual percentage yield (APY) of maybe 0.01 percent. When you do the math on that, you can see just how underwhelming those earnings are. To put it into perspective, if you maintained a balance of $1,000 then you would earn just 10 cents interest in a year’s time.

While that amount increases whenever your balance does, it’s still a far stretch from what you could be earning by utilizing other savings/investment accounts.

If you’re still not convinced that you need more than one account, here are four accounts that should boost your earnings higher.

1. High-yield savings account

A high-yield savings account is a good place to store savings such as your emergency fund as it earns a more competitive yield while also allowing for easy access in case of said emergency.

To put your earnings into perspective, let’s say you make an initial deposit of $100 and contribute $75 every month for 12 months with an annual percentage yield of 0.90 percent. Assuming the APY doesn’t fluctuate too much, you would earn approximately $4.66 in interest. And while this may not seem very substantial, remember that you would have earned just 10 cents from your checking account. Therefore, you would have increased your earnings 40x — that’s what we call a win.

This isn’t a windfall by any means, but it’s a step towards building smart savings habits by making your money work for you.

2. Money market account

A money market account is similar to a high-yield savings account, but it offers a little more accessibility as it offers check-writing privileges. MMA yields are comparable to high-yield savings rates, so it’s really a matter of preference for features.

This may also be an appealing option if who you regularly bank with offers a competitive rate. This way you can still keep things simple, but don’t be afraid to shop around for better rates if your current bank rates don’t look too appealing. 

3. Certificate of deposit

If you’re looking to boost your earnings a bit more, then a certificate of deposit (CD) is definitely worth considering. CDs offer fixed rates over preset periods of time. For example, right now you can lock in an APY of nearly 1 percent on a 1-year CD term. If you were to put $1,000 into a 1-year CD that earns 0.85 percent APY, you would earn $8.50 after 12 months.

It’s also worth exploring longer CD terms as you could boost your earnings even further. CD laddering is another option to consider if you have the ability to lock away money for a set amount of time.

4. Stocks and index funds

For those just getting started on their financial journey, stocks may sound scary. They are an inherently riskier investment option, but that also tends to translate to the potential for higher rewards.

One way to mitigate your risk is by spreading it across various stocks, which is actually a lot easier than it sounds. S&P 500 index funds, for example, are a collection of America’s top companies in various industries.

Some checking accounts do offer more attractive yields

If it wasn’t clear already, you probably shouldn’t be storing all of your money in a checking account. However, that’s not to say you shouldn’t have one that does offer a competitive yield. While it’s not very common, there are a number of checking accounts that do pay higher than 0.01 percent APY.

Here’s a look at some of the top interest-bearing checking accounts, so that you can grow your discretionary income even if it’s only by a little. Other checking accounts such as ones from Discover and Radius Bank offer customers cash back for debit card purchases.

Bottom line

Every account has its purpose and checking accounts are simply not designed for growing your savings or wealth. While it may be easier to manage, it’s only hurting your financial health in the long run.

If there’s one takeaway, let it be that you should always make your money work for you. You can do this by putting your money into one (or multiple) of the accounts listed above. It’s also a good idea to come up with a solid financial plan so that you can have a clearer idea of what your short- and long-term financial goals are and what you need to do to achieve them.

Finally, if the idea of managing multiple accounts has you stressed out, there are plenty of amazing money management apps and websites out there that help with organizing and simplifying the process.

Learn more:


Written by
Liz Hund
Creative producer
Liz Hund is a social producer at Bankrate and occasionally writes special features on-site with a social-first angle. Her writing has been featured on MSN, Business Insider and in various local publications.
Edited by
Senior wealth editor