How to Earn More Interest on Your Money

Stephanie Halligan

Stephanie is the creator of The Empowered Dollar, a website dedicated to helping millennials fix their finances and find their stride in money and life. When she’s not blogging, Stephanie is designing financial education curriculum that teach millennials and low-income families about smart money management.

What Is the Savings Account Withdrawal Limit?

Due to a federal law called Regulation D, there is a savings account withdrawal limit. You can make no more than six withdrawals per month.

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2. Establish financial goals

It isn’t easy to fulfill your dreams if you don’t know what you want. Similarly, it’s difficult to achieve your financial goals if you don’t have something to work toward. If your goal is to grow your money, it helps to know precisely why you want to grow it.

What are your financial goals? Consider your needs and what you want to work toward. Do you want to set aside money for a down payment for a house? Are you saving to start a business? A travel fund? Education for your children? Retirement?

All of these goals (and more) are common things that people say they want, but not many take the time to sit down and really lay them out. When you pinpoint exactly what you want your money for, you’ll be in a better mindset to put the tools in place to help it grow.

2. High-Yield Savings Accounts

High-yield savings accounts are a type of savings account, complete with FDIC protection, which earn a higher interest rate than a standard savings account. The reason that it earns more money is that it usually requires a larger initial deposit, and access to the account is limited. Many banks offer this type of account to valued customers who already have other accounts with the bank.

Online high-yield bank accounts are available, but you will need to set up transfers from another bank to deposit or withdraw funds from the online bank. It’s worth learning how to find and open these accounts. And make sure to shop around for the best high-yield savings account rates to ensure you’re maximizing your savings.

The maximum insurable amount in an FDIC-insured bank account is $250,000 per depositor, per bank.

6. Check with your local credit union

Credit unions, unlike banks, are owned by the people, or members, who hold accounts at the credit union. This means that they work for the benefit of account holders instead of shareholders.

In some cases, that can translate into lower fees, better account perks and higher interest rates. If you have a credit union near you, check the rates it offers, as you might be able to get a good deal.

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Do you pay taxes on high-yield savings account?

Interest accrued on high-yield savings account is taxed as ordinary income. You must report interest on your tax return for any account that earned more than $10 in one year.

3. Consider switching banks if the rate is worth it

Butler says you should also take the time to explore other financial institutions and compare different savings accounts. 

“This is a great chance to take advantage of the rising interest rate market, and you may be able to take advantage of a welcome bonus at another bank,” adds Butler. “A lot of banks — as a result of the higher interest rates — are running special promotions, too.”

If you find a specific account that provides more compelling offers than your current bank, you might consider switching institutions. 

About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for TheStreet.com, a financial publication in the heart of Wall Street’s investment community in New York City.

5. Pay off your debt

With debt hanging over your head (and possibly increasing monthly), it can be hard to imagine how you could possibly grow your money. But it absolutely can be done. The first step is to come up with a plan to pay off your debt.

Loans are important financial tools that help us accomplish all kinds of things, like getting an education or paying for a house. However, high-interest-rate loans can lead to all sorts of unnecessary costs.

In fact, it’s estimated that the average American will spend over $160,000 in interest payments alone over the course of their lifetime.

By paying off your debt, you’ll reduce the amount of money you spend on interest payments and have more money to use toward making your money grow, like investing in the market or investing in yourself.

The best thing about coming up with a plan to pay off your debt? With the right strategy in place, you can pay off debt and save and invest, all at the same time. Paying off debt doesn’t have to come at the expense of growing your money.

What is right for you?

Each of these options has the potential to increase the interest your savings earns. But which interest-bearing option is right for you will depend on your needs, risk tolerance, and the effort you’re willing to put in.

Bank bonuses, for example, can be very lucrative but require a lot of effort and attention to detail. CDs may pay higher rates, but force you to lock up your money and charge early-withdrawal fees. And higher-yielding bonds put you at risk of losing money if you sell them before they mature and they are worth less than you bought them for due to market volatility.

Take some time to think about which of these strategies is right for you.

Why Doesn’t My Money Disappear?

So if the bank borrows from your deposits to make loans, why isn’t your savings/checking balance lower than your original amount? How can the money be loaned out but still be available for you to withdraw?

It sounds like your cash has the uncanny ability to be in two places at the same time — your bank account and on loan to someone else.

That’s not exactly the case; if it was, banks would loan out all their money, and you’d get an I.O.U. each time you try to make a withdrawal. Banks aren’t allowed to just loan every single dollar out.

Regulations on bank reserves

As per federal requirements, banks and depository institutions need to keep a minimum reserve of money on hand at all times, specifically so there’s enough cash flow to transact with depositors on a day-to-day basis. That means banks can only loan out a fraction of what they actually have on hand, giving them enough to build some profit from, but without depleting their vaults or customers’ deposit accounts through Federal Reserve funds.

This gives banks the ability to strike a lucrative balance. By receiving a deposit from you, they’ve earned your business, giving them some financial capability to loan that money out and earn some interest. In return for the favor, you’re repaid some interest too, a nice perk that serves to attract and retain new customers.

Some other ways banks make money and generate profit:

Fees

Banks charge fees to pay their regular operating expenses, and too basically stay in business. There’s a reason why a brick-and-mortar bank with physical walk-in branches may charge higher fees than a not-for-profit credit union or strictly online banking provider. They have employee salaries, electricity to turn on, and paper deposit slips to pay for.

Overall, most banks will charge some kind of fees. Overdraft fees, ATM fees, credit card penalty fees, minimum account requirement fees, teller fees, loan or account application fees, or early CD withdrawal fees are just a few examples of how a few dollars here, a few dollars there bring in major earnings for banks.

Underwriting/credit checking

Underwriting is basically a step that banks and lenders take before loaning money. It’s an initial series of steps taken before granting a loan in order to reduce their risk of losing money on a loan.

On most loans, underwriting involves checking the creditworthiness of an applicant — their credit score and history — to gauge how likely they are to repay the money they’ve borrowed. It’s a way to calculate a bank’s financial risk, versus reward, before lending money. Without this process, banks would loan money to anybody, increasing the chances of delinquent/defaulted loans that can lose a bank money.

Commercial underwriting isn’t how a bank earns money; the repayment of a loan is. But it’s a process a financial provider goes through to ensure that it doesn’t lose money in order to earn it.

Investment underwriting

With investing, underwriting takes on a slightly different definition, albeit one that’s based around minimizing risk. Say a company goes public and starts selling stock to investors on the stock market. Banks need to assess the risk of losing money on the stocks/securities being sold; if they can’t sell enough stock or fund enough buyers at the price they’ve set, the bank stands to lose money by reselling the stock at a far lower price. For investors, that would be like your employer telling you that they can’t afford to pay you after you’ve been promised a certain amount of money.

If it’s stock that’s in high demand (like Apple, for one), there’s no doubt that it’ll sell; but in cases where most investments are involved, underwriting assesses the risk of losing money so a bank can earn it.

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4. Money Market Account

You may consider a money market account if you want to earn higher yields than a typical savings or checking account but still want convenient features, like a debit card or check-writing privileges.

What Are Money Market Accounts?

A money market account offers some of the best features of both savings and checking accounts. These accounts earn interest while typically offering debit and check-writing privileges. Like a savings account, banks and credit unions often limit certain types of transactions and withdrawals out of a money market account to six per month.

How Do You Open a Money Market Account?

You can find money market accounts at both banks and credit unions. The best money market accounts offer yields comparable to high-yield savings and checking accounts, so choosing this account type can be a matter of preference. Be sure to compare the account features on each money market account you’re considering, as the features can vary by institution and not all may suit your savings goals.

Eliminate Debt

It’s true that you need to have a cushion of savings to stand between you and financial catastrophe. Once you achieve that, however, you should commit every other dollar you can spare to severing the ball and chain that’s holding you back.

“First and foremost, the best way to grow your bank account is to pay off your debt,” said Katelynn Sortino, a freelance financial writer and owner of the site Cross Culture Love.

“I know this sounds counterintuitive, but over time you’re going to waste so much time and money paying high interest rates. Don’t even bother having more than a simple emergency savings until you have all of your debts paid off because you’re just working against your long-term financial health when all of your money is going towards interest payments. Do yourself a favor — pay off your debt first and then save. It’s my belief that you don’t actually have savings when you have debt.”

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Frequently Asked Questions (FAQs)

All sound saving and investing strategies begin with diversification and an asset allocation that aligns with your goals. This applies to everyone, from millionaires to everyday people.

CD rates typically reflect interest rates set by the Federal Reserve, which have been near zero for quite some time. In March 2022, the Fed decided to hike the federal funds rate for the first time since the end of 2018. Even with low yields, you can get creative with CD strategies.

The answer depends on your financial situation. It’s important to weigh the pros and cons of saving money versus paying down debt and choose a strategy that best aligns with your financial goals.

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