7 Best Alternatives to Traditional Savings Accounts in 2022

Every day people are looking for ways to do more and get more out of the money they make, 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 brick-and-mortar banks with substantial interest that they can be happy with after a year or more. But that’s unfortunately no longer the case.

Traditional banks offer savings accounts an average interest rate of 2% – 6% of the money you save, that’s not a very motivating figure. This has now made more people look to alternative ways to get more 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 (CD)

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

CDs are perfect when you have a lump sum of money you just want to set aside for future expenses or emergencies. The fixed interest rate begins to add up over the years; the longer the term to have your CDs tied up, the higher the interest rate. It’s a guaranteed way to earn way more on savings than a bank savings account.

High-Yield Checking Accounts

The interest rates banks offer for a check-in 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 restricted by any withdrawal penalty fees. High-Yield checking accounts offer a higher-than-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 requirements to keep one. Depending on the bank; you’ll need to keep a minimum balance, make a certain number of transactions in a month, and connect the account to your regular paychecks through direct deposit. There are no penalties if your balance drops below the expected 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.

Higher-Yield Money Market Accounts

One of the simplest ways to earn more interest on your balance is by opening money market accounts. Money market accounts are essentially the same thing as savings accounts, but with higher interest rates, check-writing abilities, and debit cards, unlike a traditional savings account. These MMAs offer the key benefits of a savings account while providing the features of a checking account; higher interest rates, check-writing, and debit cards.

With MMAs, you will have to keep a higher minimum balance and you can only make some withdrawals in a month. But you get rewarded with higher interest rates for keeping these restrictions. For example, a bank offering a 0.10% interest rate on a standard savings account may offer as high as a 0.25% interest rate on a money market account. Money Market Accounts are more suited to help you reach 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 build 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 yields than traditional bank savings accounts and so is a good alternative. They also mostly operate online, so you can expect a much better customer service experience online than you’ll find at a brick-and-mortar bank you’ll walk into.

Online Banks Savings Account

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

These online banks come with much higher annual percentage yields. Although their interest rates are subject to fluctuations, they tend to be higher than traditional banks’ rates. They can do this due to all the money they save on overhead spending that maintaining a physical bank branch incurs.

Peer to Peer Lending

As a potential investor who is looking to take a more active approach to their savings and investment, this is an option you want to consider. How this works is investors put up a certain amount of money on a peer-to-peer lending platform that connects you to borrowers who pay back that money in instalments with interest. The interest rate varies and is determined by the parties involved.

There is the risk of a borrower defaulting on payment, but this risk is mitigated by not lending all of your money to one individual. For example, if you choose to invest $1,000 in a lending platform, that money will be spread out over 40 different individual loans, with no more than $25 – $60 spent on any one loan. So, if any of those borrowers default, you still have a high chance of getting a good return on your investment.

You must choose good lending platforms that offer you 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 in the market.

Other Alternative Investment Platforms

There are many investment platforms available online that you can choose to invest your money with and get a much higher return on your savings. These platforms mostly operate through websites or mobile applications; you register with them online, and they offer you options you can choose from. Depending on your investment asset, your willingness to invest, and your risk appetite.

You have the option of diversifying your investment portfolio, not putting all of your eggs in one basket.

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

Customer Service – A platform where you have to wait hours or even days to get responses to your complaints is not a good platform. You could check customer reviews online and their social media to get an idea of popular complaints and responses.
Usability – Most of these investment platforms operate 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 hard 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 hard to navigate.
Withdrawals – When choosing an investment platform as an alternative to savings accounts, liquidity available is a very important factor to consider. For instance, Quanloop offers a 24-hour withdrawal period, which is extremely liquid compared to most existing services. Bondora Go&Grow is also quite liquid, withdrawals may 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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