This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.
It’s a good time to have money in the bank. Check out three accounts you may want to consider given where interest rates are today.
Image source: Getty Images
The Federal Reserve, like consumers, has had a pesky inflation problem on its hands for quite some time. Thankfully, the central bank knows just how to deal with inflation. After all, that’s its job.
Rampant inflation tends to come as a result of too much consumer demand relative to the availability of goods and services. So to solve the problem of inflation, the Fed needs to get consumers to spend less. It does so by raising interest rates to make the cost of borrowing more expensive.
Consumers may not mind signing a loan at 5% to buy the things they want. But consumers may be less than thrilled with signing a loan at 8% or 10%.
That’s how rate hikes work to cool inflation, and the 11 rate hikes the Fed implemented over roughly the past two years have finally brought inflation down to a more tolerable level. Those rate hikes have also resulted in higher interest rates for people with spare cash.
If you’re in that boat, you’ll want to do what you can to take advantage. Here are three options to consider at a time when interest rates are high.
1. A savings account
With a savings account, the interest rate you’re eligible for is not guaranteed — meaning, you can start with one rate and see that rate fall (or rise) over time. But the beauty is that you get complete control over your money.
If you want to empty your savings account to buy a boat, that’s your choice (even though it may not be the most financially sound decision). You’re not required to keep your money in the bank any longer than you want to.
2. A CD
With a certificate of deposit (CD), you’re committing to keeping your money in the bank for a preset period. In exchange, you get a guaranteed interest rate on your cash that’s typically higher than what a savings account will pay.
Now’s actually a good time to lock in a CD because as inflation continues to cool, the Fed may opt to cut rates in 2024. If you lock in a CD before that happens, you may be able to benefit from a higher rate at a time when banks are starting to pay less.
3. A money market account
A money market account offers many of the benefits of a savings account, only there’s a bonus perk: You can also, to some degree, treat that account like a checking account. This means that you may, for example, be able to debit funds from your account to pay for purchases, while earning interest on your money.
Just be aware, though, that you won’t get the same flexibility as with a regular checking account. You may, for example, be subject to a relatively small number of monthly transactions.
Choosing the right home for your money
To decide between a savings account, CD, and money market account, ask yourself whether you can commit to tying your money up for a period and whether you want the option to treat your savings as a checking account of sorts. But from there, you’ll want to find the right bank.
To that end, to make your choice, look at:
Interest ratesMinimum deposit requirementsPenalties (in the case of CDs, as these tend to apply to early withdrawals)
If you find two banks with the same minimum deposit requirement of $1,000 and the same penalty structure for a CD with one paying 5% on a 12-month term and another paying 5.1%, there’s little reason not to go with the latter. But get all of that information before making your decision.
These savings accounts are FDIC insured and could earn you 10x 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 10x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.
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.
