How to maximize your savings when rates are low

The Federal Reserve made two emergency rate cuts back in March to insulate the economy against the financial impact of the coronavirus pandemic. While this was good news for many borrowers, it was not what dedicated savers wanted to hear as it led to many banks cutting savings rates.

With rates continuing to drop lower and lower, the idea of putting savings into an interest-bearing account may not seem like it will make much of a difference.

While low rates aren’t encouraging, it’s important to remember that every little bit helps whether that pertains to the amount you’re saving or how much you’re earning on your balance.

So while rates are low, here are six ways you can continue to maximize your savings.

1. Shop around

With today’s low rates, savers are lucky if they’re able to snag (and maintain) a rate of at least 1 percent. Currently, the average savings account earns around 0.10 percent according to Bankrate’s most recent survey of savings accounts. However, by doing some shopping around, you’ll find that you can earn as much as 10 times the national average.

So before choosing a bank, shop around to see what rates are being offered elsewhere. Just because you do checking with one bank, doesn’t mean you have to store your savings there as well.

2. Track rate trends and avoid volatile options

Rates have been dropping lower and lower by the day, but some banks’ savings rates have been more volatile than others — these are the banks you’ll probably want to steer clear of.

After all, roller coasters are only fun when you’re at the amusement park…not when it comes to your savings rate.

3. See if there’s a bonus available

If you’re considering opening a new savings or checking account, it might be worth it to go with a bank that offers a bonus. However, there are a few things to consider:

  • Does the bank offer a competitive APY?
  • If the APY is low, does the welcome bonus outweigh what you could earn in interest elsewhere?
  • What are the requirements for earning the bonus and do you meet them?

These welcome bonuses tend to offer a nice initial boost in savings, but they may lack a competitive APY, which will impact your savings in the long run. Additionally, they may require a high initial deposit and minimum balance.

To see what’s available, check out Bankrate’s best bank account bonuses.

4. Consider opening a CD to lock in a rate

If the thought of a variable savings rate makes you feel uneasy, you may want to consider locking in a rate by opening a CD. That is, however, only if you are able to put your money away for a pre-set amount of time.

Currently, savers can open a one-year CD at about the same rate as some of the best savings accounts. The catch here is that savings rates are subject to change as they are variable whereas you can lock in a fixed rate with a CD.

Depending on your financial situation and goals, this could be a good way to ensure you’re earning at the rate you initially signed up for.

5. Get started with investing

Even the thought of investing can be intimidating, but it’s not quite as scary or complicated as it may seem. That is, of course, if you keep things simple.

One of the easiest ways to get started is by investing in an S&P 500 index fund, which offers stakes in America’s top 500 companies. Yes, this can be volatile and lose value; however, the stock market has historically provided long-term average returns of around 10 percent annually. (Here are some of the other best long-term investments you may want to consider.)