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Right now, the best savings account rates aren’t even 2% APY. They’re so low that even those people who are earning nothing, 0%, have very little incentive to move their money! If Bank of America is paying you 0.10% in your savings account, and an online bank is offering 1.50%, do you know how much more money you’d earn if you moved $1,000 over? You wouldn’t even make fifteen bucks more. That’s it. How much is your time worth? Certainly more than $15!

The Federal Reserve is making it hard for savers to save because they’re keeping the target interest rate so low. Why would a bank pay you 1% when they can get it for less than 0.25% from the Fed? It’s a miracle the rate is as high as 1.50%! The problem with trying to find a safe alternative is that in order to get the rewards, you have to take some risks. Savings accounts have zero principal risk because they are FDIC insured, the only risk you face is inflation risk (you earn 1% but inflation goes up 3%, you’ve essentially lost purchasing power) and everyone deals with that.

So what are some “relatively” safe alternatives?

Reward Checking Accounts

A reward checking account really was an ingenious creation. You can earn a very high interest rate on your balance, up to a certain dollar amount, is you can satisfy certain requirements such as using your debit card 10-12 months, using online bill pay, and direct deposit. The actual requirements will change from bank to bank but that’s the general idea.

This is possible because the transaction fees the bank earns off your debit card use will pay for your higher interest rate. This is the only one on the list that’s 100% safe because it’s FDIC insured up to $250,000, though most will only pay the high interest rate up to a much smaller dollar amount (I see $25,000 as the limit at many banks).

Dividend Stocks

A dividend is a quarterly or semiannual cash payment that a company pays out to its shareholders based on the number of shares they own. The main benefits of dividend investing is that the dividend, if qualified, is taxed at the long term capital gains rate, which is often much lower than ordinary rates (which we refer to as the tax brackets).

You can use other strategies to amplify the rates of return on dividend stocks, such as investing in companies with a history of dividend increases, but ultimately the idea is that you take some risk to earn a little more reward. If you aren’t the risk taking type but still want to tap into slightly higher yields, you can invest in a high yield dividend fund, which would diversify your investments across many companies.

Junk Bonds

Junk bonds are bonds that have a low credit rating and high yields. The risk with junk bonds is that many novice investors think of bonds as “safe,” even when they aren’t. A Treasury Bond is safe, it’s backed by the United States Government. A bond from company XYZ is only as safe as company XYZ’s ability to pay the bond, which is reflected in the offering’s credit rating.

I put junk bonds on the list because it’s an alternative to savings accounts, offers a higher yield, but also because I wanted to add a little word of warning on bonds – these are often tied very closely to the performance of the company. So it’s a bond whose price moves a lot more than your typical bond, thus acting like a stock. If a company is doing well, the bond price will go up and people will pay a premium. If the company is doing poorly, the bond price will go down as people look to exit. Treasury Bonds have very little fluctuation in their price, junk bonds will have a lot more.

Those three alternatives are just a sampling of what’s out there right now if you want to squeeze a few more percentage points out of your savings. They run the spectrum of safe (reward checking) to not safe at all (stocks and bonds), but it should give you an idea of what you might want to research next if your savings need a better home. Just remember one thing, you won’t lose money in a savings account.

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