Building a nest egg in a low-rate environment is tricky, but not impossible. You won’t rake in huge dividends, but you can get a noticeable return on your investment if you know what to look for in a savings account. Even a little extra interest from a bank or credit union can add up over time.
Here are four ways to earn the highest interest rate on a savings account.
1. Research current savings account rates
The best savings accounts today pay around 1.05 percent annual percentage yield (APY). But you have to put in the work to find a high-yield account that fits your needs.
Paul Golden, a spokesperson for the National Endowment for Financial Education, recommends shopping around with different banks, credit unions and online-only institutions to find the best account for you.
Online accounts tend to pay higher rates than traditional banks with branches. “Institutions that are not brick and mortar have less overhead and may pass benefits on to customers,” Golden says.
While large banks aren’t known for paying high rates, they can offer additional perks if you bundle their services.
“Larger institutions may offer benefits such as higher savings rates because customers fulfill all of their banking needs such as mortgage, checking, savings, loans and investments with the institution,” says Zaneilia Harris, CFP, president of Harris & Harris Wealth Management Group.
Local credit unions can be another worthwhile option. These are not-for-profit, member-owned institutions that distribute their profits to their members. “One benefit of the redistributed profits is this allows credit unions to provide higher rates on savings,” Harris says.
2. Compare high-yield savings accounts online
An online comparison of today’s best high-interest savings accounts can help you assess current rates and weigh the benefits of different accounts, while tools like Bankrate’s savings calculator can help you determine how much of a return you would receive based on your expected balance.
When comparing accounts, look for secondary features and associated fees. Golden recommends finding out about minimum balance requirements, data breaches, restrictions, penalties and fees as well as how you can access and transfer your money.
“It’s a common mistake – particularly among young people – to sign up for an account that is not right for them,” Golden says.
3. Deposit a large amount of money
Some banks offer tiered interest rates to reward customers who maintain higher balances. Savings accounts may offer premium rates if you deposit at least $10,000 or $25,000, for example.
Be careful not to deposit so much that you forgo getting a better return elsewhere, says Shon Anderson, CFP, CFA, president of Anderson Financial Strategies LLC.
“Deposit a large enough amount to obtain the best rate you can, but it shouldn’t be more than your three- to 12-month emergency fund and other money you think you’ll spend in the near future,” Anderson says.
Any excess cash would likely be better off invested in the market with a target annual return rate of 6 percent to 8 percent, versus the 1 percent to 2 percent you usually find in high-interest savings, Anderson says.
4. Avoid teaser rates
The best available interest rates may be short-lived. These so-called teaser rates are when a bank offers an attractive interest rate to lure consumers into opening a savings account, only to significantly lower the rate after just a few months.
To dodge this trick, Anderson says it’s best to stick to banks that have a longstanding reputation of offering competitive rates on savings accounts. “If the specific savings account is highly rated across the web and heavily recommended on financial sites and forums, it’s likely not going to be a teaser rate,” he says.
You may also have to maintain a minimum balance and meet other requirements to get the high rate. Check the fine print explaining the rate’s terms.
Featured image by David Lees of Getty Images.