Interest from a bank account can be earned from four different account types: a savings account, an interest-earning checking account, money-market accounts (MMA), and certificates of deposit (CD). In order to earn higher interest rates, customers often have to compromise on flexibility in order to get a higher pay-off, such as limitations on withdrawals and deposits or paying a monthly fee. Savings and checking accounts usually provide a flexible and low-yield option for earning interest, while MMA’s and CD’s provide higher rates at reduced flexibility.
How to Earn Interest from a Bank Account
Depositing your money in a bank account can provide you with a safe option for keeping and growing your money. Determining how much interest you can earn on your money is a big consideration in what bank you choose, and what type of account you open. Several options exist for how to grow interest from a bank account, depending on the type of account, how much money you have to invest, and meeting certain conditions on the account. The different account types that earn interest include a traditional or online savings account, an interest-earning checking account, money-market accounts (MMA), and certificates of deposit (CD). Find a bank that offers CDs near you:
The most traditional way to earn interest from a bank account is through a savings account. As opposed to a checking account, the savings account is not meant to be used on a regular basis but provides an easy-access and low-risk means of earning interest. Therefore, interest rates are typically higher, and the money can accumulate more interest over time. While the account’s funds are always available to be withdrawn (as opposed to a certificate of deposit [CD]), many banks limit the amount of withdrawals you can make each month.
Compound Interests on Savings Accounts
The contents of a savings account typically earn a compound interest, whereby the calculated interest for each period also includes previous interest earned on the initial deposit. Depending on the bank and type of account, interest can be compounded daily (best option), monthly, or quarterly. As a result, these accounts will still build wealth over a long period of time, even when interest rates are very low.
Savings accounts from online-only banks typically provide higher interest from a bank account than “brick and mortar” banks. While accounts must be exclusively managed by the customer (using a smartphone, laptop, or tablet), online banks require little to no monthly fees and result in higher interest rates.
Calculate your potential for earning compound interest using this online compound-interest calculator by inputting your initial investment, monthly contribution, interest rate, and how the interest will be compounded (daily, monthly, etc.). View interest rates for savings accounts in your area:
Interest-Bearing Checking Accounts
Another way to get interest from a bank account is by opening an interest-bearing checking account. Though not very common, this account functions similarly to a traditional checking account; it contains your liquid assets, and can be used for online bill pay, making withdrawals with a debit card, or writing checks. The main difference is that interest-bearing checking accounts can earn higher rates of interest and are typically available exclusively from online banks. Customers must also maintain certain conditions on their accounts in order to earn the interest, such as maintaining a minimum balance, paying a low monthly service fee, and/or completing a limited number of account actions each month.
You can compare six different options for online interest-bearing checking accounts at this website.
Money Market Accounts
Money-Market Accounts (MMA) and Certificates of Deposit (CD) are two more ways to get interest from a bank account. MMA’s can be thought of as a hybrid between a savings account and an investment account. Offering more interest than a typical savings account, and covered by FDIC insurance, customers can also withdraw money as needed. In order to achieve these high interest rates, customers must compromise on flexibility by maintaining a minimum balance and limiting their monthly transactions and withdrawals.
Long-term CD’s usually provide a better interest rate than MMA’s, savings, and checking accounts, but come with rigid conditions. The minimum deposit required is typically higher than other accounts, and an initial term-length must be chosen by the customer upon opening the account. Though longer term-lengths (ranging from three months to five years) earn higher rates, customers can not make any deposits or withdrawals until the term is completed.
Figure out which Money-Market Account can work best for you at this website, considering how much money you want to invest and your financial needs.