7 Best Alternatives to Traditional Savings Accounts in 2022

Every day people are looking for ways to do more and get the most out of the money they earn, and for a long time saving your money in a bank was the best way to do that. People would open a savings account in physical banks with substantial interest that they could be satisfied with after a year or more. But unfortunately this is no longer the case.

Traditional banks offer savings accounts with an average interest rate of 2% to 6% of the money you save, this is not a very motivating number. This has now caused more people to look for other ways to get the most out of their money than putting it in the bank.

Fortunately, there are other options available that can help you earn more return on your money. Let’s look at seven alternatives to a traditional savings account that will get you much better returns on your money.

Certificates of Deposit (CDs)

A certificate of deposit is a type of savings that pays fixed interest for a certain period of time. The interest earned on CDs is higher than what you’ll get with a basic savings account with a bank. These higher rates act as a sort of compensation for the lack of liquidity in your funds. With CDs, you can’t touch your savings until their maturity date, unless you risk a withdrawal penalty fee when you try to withdraw money from your CD.

CDs are great when you have a lump sum of money that you just want to set aside for future expenses or emergencies. The fixed interest rate begins to accumulate over the years; the longer your CDs are blocked, the higher the interest rate. It is a guaranteed way to earn much more on savings than a bank savings account.

High Yield Chequing Accounts

The interest rates offered by banks for a current account are much lower than the interest rates on a savings account; some financial institutions offer high-yield checking accounts with slightly better interest rates. With high-yield checking accounts, you’ll have access to your money and won’t be limited by withdrawal penalty fees. High-yield checking accounts offer above-average APY (annual percentage yield) compared to traditional checking accounts. You also get free checks and debit cards with these accounts, unlike a traditional savings account.

The trick with these accounts is that they require you to meet certain conditions to maintain one. Depending on the bank; you’ll need to maintain a minimum balance, make a certain number of transactions per month, and connect the account to your regular paychecks via direct deposit. There are no penalties if your balance falls below the prescribed minimum balance or if you fail to meet any of the other requirements. The bank will simply offer you the standard lower interest rates for checking accounts.

High Yield Money Market Accounts

One of the easiest ways to earn more interest on your balance is to open money market accounts. Money market accounts are essentially the same thing as savings accounts, but with higher interest rates, check-writing capabilities, and debit cards, unlike a traditional savings account. These MMA offer the main advantages of a savings account while offering the functionalities of a current account; higher interest rates, checks and debit cards.

With MMA you will need to maintain a higher minimum balance and you will only be able to make a few withdrawals per month. But you are rewarded with higher interest rates for maintaining these restrictions. For example, a bank offering an interest rate of 0.10% on a standard savings account may offer an interest rate as high as 0.25% on a money market account. Money market accounts are best suited to help you achieve your short-term financial goals.

Cash management accounts

Cash management accounts are alternative banking options offered by non-bank financial service providers; either built by brokerage firms or fintech startups. They are building a hybrid product that offers the features of traditional savings and investment accounts. They offer considerably higher interest rates than banks. Most cash management accounts can do this by floating their customers’ money through other traditional bank accounts.

Cash management accounts tend to offer higher annual percentage returns than traditional bank savings accounts and are therefore a good alternative. They also operate primarily online, so you can expect a much better online customer service experience than you’ll find at any physical bank you walk into.

Online bank savings account

Online banks offer most, if not all, of the services offered by traditional banks, plus the added benefit of higher APYs and friendly customer service.

These online banks offer much higher annual percentage returns. Although their interest rates are subject to fluctuations, they tend to be higher than traditional bank rates. They can do this with all the money they save on the overhead of maintaining a physical bank branch.

Peer-to-peer lending

As a potential investor looking to take a more active approach to saving and investing, this is an option you want to consider. How it works is that investors put a certain amount of money on a peer-to-peer lending platform that matches you with borrowers who repay that money in installments with interest. The interest rate varies and is determined by the parties involved.

There is a risk that a borrower will not pay, but this risk is mitigated by not lending all your money to one person. For example, if you choose to invest $1,000 in a lending platform, that money will be spread across 40 different individual loans, with a maximum of $25 to $60 spent on a single loan. So if one of these borrowers defaults, you still have a good chance of getting a good return on your investment.

You must choose good lending platforms that provide you with good security and safety for your funds. Peer-to-peer lending platforms like Mintos, EstateGuru, and Reinvest24 are some of the best lending options you’ll find out there.

Other alternative investment platforms

There are many investment platforms available online with which you can choose to invest your money and get a much higher return on your savings. These platforms mainly operate through websites or mobile applications; you sign up online and they give you options to choose from. Depending on your investment assets, your willingness to invest and your risk appetite.

You have the opportunity to diversify your investment portfolio, without putting all your eggs in one basket.

There are more options than you can count when looking for an investment platform to use, but there are a few things you need to consider before choosing one.

  • Customer Service – A platform where you have to wait for hours or even days to get your complaints answered is not a good platform. You can check customer reviews online and their social media to get an idea of ​​the most common complaints and responses.
  • User-friendliness – Most of these investment platforms work through their websites and apps, so if you are a beginner, you should choose a platform that is easy to use and understand. It shouldn’t be difficult for you to track your investments and know exactly how your money is working for you. The investment platform you choose shouldn’t be complicated or difficult to navigate.
  • Withdrawals – When choosing an investment platform as an alternative to savings accounts, available liquidity is a very important factor to consider. For example, Quanloop offers a 24-hour withdrawal period, which is extremely liquid compared to most existing services. Bondora Go&Grow is also quite liquid, withdrawals can take up to 3 days.

When looking for European alternative investment platforms, Quanloop and Bondora are some of the best options to consider.

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