Alternatives to low CD rates

While you can always count on me to point you in the right direction for the best CD rates available nationwide, let’s face it: even the best rates are no cause for celebration right now. The past few years haven’t held much good news for low-risk investors. As rates on savings products continue to fall, savings growth has slowed to a crawl. Today’s post is dedicated to the world outside certificates of deposit – a world that includes some products that have comparable earnings potential with varying restrictions.

High-yield checking – You’re probably saying, hold on a minute there, Hunter. If free checking is disappearing, where am I supposed to find a high-yield checking account? It turns out that many community banks offer checking accounts with interest rates as high as 4 percent. There are some catches, though. While CDs typically allow you to invest up to the FDIC insurance limit of $250,000, high-yield checking accounts are intended to function more like an everyday spending account. Most of them have limits under $25,000. To qualify for these great interest rates, you’ll need to arrange direct deposit, make a minimum number of debit card purchases and pay your bills online via the funds in this account.

High-yield savings – With 1-year CDs offering APYs of 1 percent and below, you should also consider high-yield savings accounts at online-only banks such as Ally and Discover. The APY on these accounts is keeping up with those 1-year CDs – without the whole “1-year” commitment. Rather than risk the fear of paying an early withdrawal penalty, you can just keep your money in a liquid savings account, remain under the protection of FDIC insurance and continue earning a bit of interest. Plus, if CD rates climb over the next year, you’ll be able to open a new CD with more favorable earnings.

What alternatives have you considered? Or are you sticking with CDs for now?