Checking Accounts
Checking accounts often offer the least bang for your buck.
At the end of March, depositors held $1.1 trillion in checking accounts that paid no interest, up 17% from a year earlier, according to Moebs. Yields also are declining on many checking accounts that do pay interest.
In addition, depositors are paying higher fees on checking accounts. This year, 41% of financial institutions, including banks and credit unions, don't offer free checking without imposing conditions, the highest proportion since 2002, according to a Moebs survey.
Many institutions charge monthly service fees, which typically range from $3 to $15 and can quickly eat into any interest on the account.
But there are some banks that offer checking accounts that pay relatively high yields and don't charge a monthly fee.
As with savings accounts, consider looking online. First National Bank of Omaha, in Nebraska, has an online unit, fnbodirect.com, that pays 0.65% annually on its checking account on balances up to $1 million. This is among the highest-yielding checking accounts available nationwide that doesn't charge a monthly fee or require savers to meet restrictive conditions, according to DepositAccounts.com.
Ally Bank, a unit of Detroit-based Ally Financial, ALLY +0.38% offers 0.60% if you maintain a balance of at least $15,000. There is no monthly fee.
Even checking accounts that carry no monthly service fee can cost a bundle in other charges, such as for overdrawing or withdrawing funds from automated teller machines outside the bank's network. Most institutions include a list of checking-account fees on their sites.
Many community banks and credit unions offer higher-yielding checking accounts, but they often come with catches. Account holders may need to arrange for a regular direct deposit of funds or use a debit card linked to an account a certain number of times each month.
In most cases, consumers also must live or work in the area the institution serves.
For example, Lake Michigan Credit Union, based in Grand Rapids, Mich., offers one of the highest-yielding checking accounts in the country, at 3% on up to $15,000. But the yield is only available to members, who generally must live, work, study or worship in Michigan's Lower Peninsula, and their families. People who don't meet the criteria can become members if they donate to a local charity.
Certificates of Deposit
Banks are trying to make certificates of deposit a better deal. They aren't always succeeding.
Traditional CDs have rigid terms, paying a fixed yield to depositors who agree to lock up their money for a certain term, and charging for early withdrawal.
The problem is that fewer depositors are willing to strike that deal with interest rates at historic lows, for fear the Federal Reserve could push rates higher and leave them stuck with the lower yield, says Mr. Geller of Market Rates Insight.
Longer-term CDs in particular have fallen out of favor, he says. The amount of money socked away in CDs with maturities of more than three years fell to $157 billion by the end of March, down 8% from a year prior, according to Market Rates Insight.
Some banks are offering CDs with yields that can change before maturity. Ally Bank and CIT Bank, for example, offer CDs with yields that rise if the banks start offering a higher interest rate.
Such deals may sound appealing, but savers should be cautious. If a bank doesn't increase its interest rate, or if the interest-rate index an account is pegged to doesn't rise, savers are stuck. If interest rates decline, however, the yield won't.
In some cases, you can get more favorable terms with a traditional CD.
Minneapolis-based U.S. Bancorp, USB +0.92% for example, pays 0.40% on a 30-month CD whose yield can rise before maturity. But savers can earn more with a one-year plain-vanilla CD from GE Capital Bank, another GE unit, which pays 1.10%, a two-year CD from Salem Five Direct that pays 1.25% or a three-year CD that pays 1.45% from SLM Corp. SLM +1.02% , the Newark, Del.-based student lender known as Sallie Mae, which also offers bank accounts.
You also could get a better deal from a traditional long-term CD that charges a relatively low penalty for early withdrawal, says Richard Barrington, senior financial analyst at MoneyRates.com, which compares bank-account terms.
Consider this example: A saver who deposited $100,000 into a one-year CD with a 1.1% yield—the highest available nationally for deposits of that size, according to DepositAccounts.com—would collect $1,100 in interest at maturity. Both Synchrony Bank and EverBank offer that yield.
By comparison, CIT Bank and Synchrony Bank offer five-year CDs with 2.3% annual yields. If you deposited $100,000 into Synchrony's CD and kept it there for 13 months before withdrawing the money, you would collect $1,156 in interest, even after paying a penalty of six months' interest.
Prepaid Cards
Many consumers associate prepaid cards with spending. But they also can help you earn more money on your cash, if you have the time to find a good deal and use the cards wisely.
Prepaid cards offer consumers the convenience of loading funds onto a card that they later can use to get cash from an ATM or to pay for goods at a store.
Several prepaid cards also come with a perk: Cardholders can earn upwards of 5% on cash stored on the cards.
For example, Mango Financial, a prepaid-card issuer and subsidiary of Rêv Worldwide, based in Austin, Texas, offers a 6% yield to cardholders on up to $5,000. Prepaid cards provided by NetSpend, a unit of Total System Services, TSS +1.17% a card-processing company based in Columbus, Ga., can be linked to savings accounts that pay 5% on balances up to the same limit.
These companies aren't banks, but funds loaded onto the cards are covered by FDIC insurance, like most regular bank accounts.
Use caution: Many prepaid cards charge monthly service fees, which typically range from $5 to $10 a month and which can quickly erode the benefit of higher interest payments.
But it is possible to avoid fees in some cases, which can make the yields on prepaid cards appealing, says Odysseas Papadimitriou, chief executive at WalletHub.com, a bank-account comparison site.
NetSpend offers one prepaid card that has no monthly fee but charges cardholders for most transactions. However, cardholders can avoid the fee by not shopping with the card.
In most cases, cardholders must pay a separate fee to access the funds through an ATM, often at least $2 to $2.50 per withdrawal.
Some firms also impose other conditions. Mango Financial, for example, requires a direct deposit into the savings account each month or the yield drops to 2%. The company also charges $3 a month, which can't be waived.
Still, the deals can be worthwhile. Assuming one ATM fee to withdraw the entire amount, account holders who add $500 to their card each month for 10 months and don't spend it can collect $106.07 in interest on a Mango account.
By contrast, the interest on that same amount held in a savings account yielding the average 0.08% would be $1.84.
Comments
In these times, cash is not king. While there maybe be instances where cash has a place, ie short term savings or holdings, I would invest in very conservative funds if I had no choice.
Zero interest rates are especially hard on senior citizens.