Alternatives When Your High-Yield Savings Account Is Paying You Nothing

• Author: Michael Bordonada
• Posted: 2024-11-07

High-yield savings accounts are paying next to nothing right now. Interest rates are at zero because of the pandemic, and account holders are not being paid much more than that by their banks. With the rate of inflation, high-yield savings accounts even have a negative rate of return right now. For some, they will still need to have the money in a high-yield account because they will need to maintain liquidity as long as their job and finances are at risk. However, others may be looking for an alternative to a high-yield savings accounts. Here are some things that you can consider instead of these accounts that are paying back next to nothing right now.

Utility Stocks

While some will tell you that you can put your money into the stock market as a replacement for a high-yield account, you need to be careful where you put it given the volatility of the market right now. A utility stock will be safer than a high-flying technology stock. The stock may still go down, but it is less volatile. In the meantime, you are earning a dividend rate between 4-6% for any risk that you take. These are some of the most stable stocks in the market with safer dividends. This will pay you much more than a near-zero interest rate of a savings account.

Municipal Bonds

Municipal bonds have some downside risk to them, but the good news is that they have already been beaten down by the pandemic. Thus, much of the downside price risk of munis has already been realized. As long as cities and municipal authorities do not go bankrupt, they will keep making the interest payments on these bonds. What you will get is a return between 4-6%. This outpaces the rate of inflation and will give you a positive return. The great thing about municipal bonds is that your interest payments on the bond is tax-free. You would need to pay capital gains if you make money on your investment, but the tax-free payments are a definite boon for investors looking for a steady income.

Government Bonds

These will also pay a higher rate than your high-yield savings account, and they are backed by the full faith and credit of the United States Government. No matter the deficit that the government runs, the U.S. will not default on its debt unless something crazy or catastrophic happens. Even with the historically low interest rates, a long-term government bond will still pay you more than a savings account that has no yield whatsoever. This is a liquid market, so it is very easy to sell your bond and get your money if you find that you need it for anything in the future.

Reduce Your Debt

There is nothing that says that you need to put money in a savings account if you are earning nothing on it. Of course, you need to have a certain minimum amount in savings so you can stay liquid in the event of an unplanned expense or job loss. However, if your emergency fund is already topped off, you can consider other uses or the money. One thing that you can do is to start paying back your debt with higher interest rates. This would include credit card debt and other personal loans. The amount of money that you save by paying back debt will add to your bottom line each month. Many people do not realize exactly how much they spend each year in credit card interest. Lowering that cost can help you elsewhere in your financial life.

Pay Ahead on Your Mortgage

This is an unconventional way to save money by paying money. When you pay early on your mortgage, you are essentially using your house as a bank where you stash money. Paying ahead does not mean that you can skip future payments, but it does lower the amount that will owe on the balance of your loan. In the meantime, you are avoiding an interest rate of 3-4% on your mortgage balance. Paying down a mortgage is a good way for people to put their extra money to use if they are afraid of losing it by investing it in the market. It is better to put your money to use somehow instead of putting more into an account that is paying you nothing.