The 7 Best Ways to Earn Interest & Make Your Money Work for You
Yvette is a financial specialist with over 16 years of experience in consumer and business banking. Her expertise is highlighted across Fit Small Business in credit card and bank account content.
This article is part of a larger series on Business Banking.
One simple way to earn interest and make your money work is to open interest-bearing deposit accounts. Whether it’s a basic savings account or an interest-earning checking account, it’s a convenient way to meet your savings goals and watch your funds grow. Since these bank accounts come in a variety of types, including certificates of deposit (CDs) and money market accounts, it’s easy to find one that will work for you.
Here are the seven best ways to earn interest and make your money work for you.
1. Open a High-interest Savings Account
Whether you’re managing your personal or business finances, savings accounts are the easiest bank accounts to open since they’re available at most financial institutions. However, since not all savings accounts are created equal, and some offer meager rates than others, it’s important to compare rates before opening one.
Most account interest rates are based on the prime market rate, which can fluctuate and change over time. When the prime market rate is low, savings account rates also drop. A good rule of thumb when looking for a high-yield savings account is to find one that has an annual percentage yield (APY) that’s at least five to 10 times higher than the national savings average, which is 0.05% as of January 2021. Most high-interest savings accounts typically are offered by digital and online banks, so it’s not a bad idea to start your search there first. When shopping for a savings account, make sure to use a savings calculator to estimate your potential savings growth.
2. Switch to a High-yield Checking Account
It’s not just savings accounts that can earn you interest as checking accounts are also a great option to earn interest on your balances. In some cases, checking accounts offer better rates than some savings accounts. Interest-earning checking accounts allow you easy access to your funds while being less restrictive than savings accounts.
There are business checking accounts that offer a high APY on account balances. You just need to know where to look. Most of the highest-yield business checking accounts are offered by online banks like LendingClub Bank and First Internet Bank. These accounts are a good option, especially if you want to earn interest on your business account while being able to access your funds without penalties.
3. Look for High Introductory APY Rates
While a high ongoing APY is ideal, you won’t always find it in a bank account. However, some banks offer high introductory APY rates for a set period of time, usually the first 12 months from account opening. High-interest promotional rates are great when you have a short-term savings goal and want to earn the maximum interest on your money in a short amount of time. In most cases, you can still earn decent interest on your deposits once the promotional period ends.
4. Consider Opening a CD
CDs offer another excellent opportunity to earn interest. The APYs vary as much as standard savings accounts, but investing in a good high-yield CD can help you get closer to your savings goals. A CD is a time-locked account, so it’s a terrific way to deter spending temptation. Plus, most banks have CDs for businesses, so you can have one for your business as well.
Typically, CDs offer a fixed interest rate, so you won’t need to worry about losing out on interest if the rates drop. However, you won’t have access to your money until the maturity date. Most banks offer a variety of terms that typically last from 21 days up to 10 years, but the most common CDs have three-month, six-month, and 12-month terms. If you withdraw your money before the term ends, you’ll incur steep penalty fees, making it not worth the investment.
5. Utilize a CD Ladder
One way to manage the CD time restrictions is to open multiple CD accounts with different maturity dates. For example, if you open four CD accounts, you could choose those that mature in three-month intervals—one CD with a three-month term, one with a six-month term, one with a nine-month term, and one CD with a 12-month term. This will give you access to your money every three months without early withdrawal and closure fees.
You can also let the CD auto-renew after maturity if you don’t need the money right away. You can ladder your CDs however you want, which is a great way to keep regular access to your money in case you need it.
6. Consider a Money Market Account
Money market accounts are a cross between a checking account and savings account, making them an ideal option when you’re unsure which one to open. Money market accounts typically have higher interest rates and allow for easier access to your funds than savings accounts. With a money market account, you can write checks, make debit card purchases, and withdraw cash via ATM. However, like a savings account, you are restricted in terms of the number of withdrawals you can make each month. It’s worth comparing interest rates beforehand to ensure you get a high-yield account.
7. Check With Your Local Credit Union
Local credit unions have fewer costs than larger banks, so you’ll likely get a higher interest rate with better terms at your local credit union. Many people, including business owners, find it easier to get financing with credit unions, making it easier to build a banking relationship with them. Credit union accounts are also insured under the National Credit Union Administration (NCUA)—the equivalent to Federal Deposit Insurance Corporation (FDIC) insurance for banks, so you’re covered up to $250,000.
How to Know Which Accounts Are Right for You
Knowing which account is best for you will depend largely on your savings goals, how long you can afford to put money away, and how often you need access to funds. If you’re saving up for a vacation or down payment on a house, an account with easy access to funds, such as a money market savings or an interest-earning checking, would be the way to go. If you struggle with spending your savings, a time-restricted CD may do better at keeping you on track.
If you’re a business owner, be sure to look for a savings account that gives you the terms that fit your business structure. Some business checking accounts are only available to incorporated businesses. If you’re a freelancer, you may need an interest-bearing checking account that’s designed for sole proprietors. Whatever your needs are, make sure to open an account that gives you the best return on your money.
Bottom Line
Although online banks provide a variety of accounts that offer high interest rates, you can still get favorable APYs on accounts with traditional banks and local credit unions. Plus, interest-bearing accounts vary in features and terms. So, whether it’s a high-interest savings account, money market account, checking account, or a CD account, make sure that the interest rate is high enough to make it worth your investment.
