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For most of the past 14 years, the highest return you could get from your savings account was a bland smile from your banker. But short-term interest rates are rising, thanks to the Federal Reserve Bank’s efforts to slow down the economy and squash inflation.
Currently, you can get as much as 3.65 percent on a five-year bank certificate of deposit (CD), according to Bankrate.com. That may not sound like much, but on a $10,000 savings account, that’s $365, which is about $365 more than you’re getting now.
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You have to shop around for those higher yields: The average five-year CD still yields just 0.87 percent. Here are five good places to look to earn additional interest on your money.
1. Bank savings accounts
The average savings account pays next to nothing. A savings account at Wells Fargo, for example, offers you 0.01 percent, which means you could double your money in 7,200 years. You can do better.
Dollar Savings Direct currently offers a savings account yielding 3 percent, with a minimum balance of $1. Quorum also offers a 3 percent savings account. UFB Direct weighs in with a 2.85 percent yield.
You may notice that Dollar Savings Direct and UFB Direct are online banks: You can’t walk into the lobby to open your account. You can, however, open an account online. The money saved on bricks and mortar allows them to offer higher yields than many traditional banks. (Quorum is a credit union.)
Money market accounts are a variant of savings accounts that typically pay higher interest rates and come with check-writing capabilities. However, money market account holders are usually limited to six withdrawals a month, not including withdrawals from automatic teller machines (ATMs). Here again, online banks tend to offer the highest yields.
2. Bank CDs
A CD typically offers a higher yield than a savings account or a money market account. That’s because a CD ties up your money for a set period of time, typically three months to five years. You’ll have to pay an early withdrawal penalty if you take money out of your CD before it matures. There is no maximum penalty, but the early withdrawal penalty is typically 90 to 180 days’ interest.