Interest-generating savings: 3 options for sure growth

The best time to save against the next economic setback is now

If your refrigerator went kaput today, could you replace it without taking on debt?

It’s a problem many Americans face. While 98% of U.S. households have money in a bank account, such as a savings account, only four in 10 said they could cover an unexpected $1,000 expense.¹

How much should a household save? One rule of thumb is to shoot for 15% of pre-tax pay, and accumulate enough to cover six months of expenses. But consumers of all households can turn that 15% into more, without depositing more, by choosing savings accounts that earn competitive interest rates.

Such recommendations have always existed, but they are likely hitting closer to home for many more people now. Higher prices are eating into budgets and many consumers are feeling the pinch.

Assets such as interest-earning money market accounts and certificates of deposit, however, can be used to gain interest on savings with more favorable interest rates than other options.²

Banking on high-interest financial security, 3 ways

Right now, with interest rates on high-yield savings accounts climbing – some offering 3% to 4%³ – some interest-bearing accounts are growing more than other earnings options.

This enriches the incentive for squirreling away six months of savings. Only 23% of Americans carry that much in living expenses in the bank, and 26% have no savings at all.⁴ If these households set aside just a small amount of money in interest-bearing accounts, that savings could grow much faster today.

Where to start? Consider these popular cash-equivalent options.

• Interest-bearing savings accounts. Many banks offer special savings accounts that pay interest and can be geared for specific needs. This is an easy-to-understand, secure way to earn a little bit of money each month and is ideal for “newbie” and super-cautious savers. And because different savings plans benefit the account owners in different ways, the options are fairly tailored. At First Financial, for example, our f1RST Everyday Savings earns interest with no service charges if the balance is at least $250.^* Our Everyday Student option, meanwhile, is for consumers younger than 18, and pays interest with no minimum balance requirements. It’s a productive way to understand the value of saving early. Compare your options here.
• Certificates of deposit (CDs). Traditional CDs are like interest-bearing savings accounts with one key difference: They require the money remains in the account for a set period of time, which can be as little as 30 days or for years. In that time, the money in the CD earns interest, which varies based on the time commitment. Usually, the longer the term, the higher the interest rate. There are other kinds of CDs, however – some allow the holder to withdraw from the account without penalty, others may bump up the interest rate. Some people put money in several CDs with varying term limits, so they always have access to some money (this is called “laddering”). These options come with sets of guidelines and are worth asking about.⁵ You can learn which CDs are a good fit for you here.
• Money market accounts (MMAs). This savings option also is similar to a savings account, although money market accounts traditionally earn higher interest rates than traditional savings. And like savings accounts (and CDs), the money in an MMA is protected by the Federal Deposit Insurance Corp. Unlike a typical savings account, however, some MMAs come with check-writing options, for fast cash access.⁶ Our Premier Money Market account, for example, includes free cashier’s checks, money orders, and domestic wires. It also offers our best interest rates, although our f1RST Money Market accounts earn at a high interest rate as well. Both are free of fees, if they meet certain terms. You can learn more details about our two MMAs here.

Take comfort in cash, no matter how much you have

One rule-of-thumb for having cash in hand is it is an equal-opportunity option. Liquid savings are advantageous to consumers of all income levels, and at all stages of life.

You don’t have to be a millionaire to feel like a million dollars when it comes to your financial choices. Money in the bank always represents security. It may not earn as much as a hot stock in good times, but it is reliable in hard times, and it’s at your fingertips.

Want to learn more about how you or other family members can be better savers? You can reach out to us in a snap, online. Just send a message and we’ll respond as quickly as we can.

1 “The average amount in U.S. savings accounts – how does your cash stack up?” By René Bennett, Bankrate.com, Dec. 21, 2022; https://www.bankrate.com/banking/savings/savings-account-average-balance/

2 “What Is a Liquid Asset, and What Are Some Examples?” By James Chen, Investopedia, Aug. 4, 2022; https://www.investopedia.com/terms/l/liquidasset.asp

3 “What is the average interest rate for savings accounts?” By Matthew Goldberg, Bankrate.com, Nov. 17, 2022; https://www.bankrate.com/banking/savings/average-savings-interest-rates/

“Best high-yield savings accounts in March 2023,” By Matthew Goldberg, Bankrate.com, March 6, 2023; https://www.bankrate.com/banking/savings/best-high-yield-interests-savings-accounts/

4 “How Does Your Emergency Fund Compare?" By Lou Carlozo, Money Under 30, Feb. 8, 2022; https://www.moneyunder30.com/compare-average-emergency-fund-savings/

5 “Financial strategies: certificate of deposit,” First Financial Bank; https://www.bankatfirst.com/personal/discover/flourish/cd-explanation.html

6 “What Is a Money Market Account?” By Margarette Burnette, NerdWallet, Sept. 9, 2021; https://www.nerdwallet.com/article/banking/faq-money-market-account

* Earn out activities mentioned need to occur each statement cycle in order to receive the account credit(s).

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