What’s The Best Way To Earn Interest On Money? 5 Options To Explore

If you have money sitting in a savings account or you’re about to put money in one, you may be able to earn passive income from interest. Using the right type of account or product, you can yield returns on your savings in many ways.

Below are some options so you can choose the best way to earn interest on your money.

How To Earn Interest On Savings: 5 Ways

Many financial products offer clients the opportunity to earn interest as they save money. While some methods are riskier than others, a few low-risk options can still bring returns that are likely higher than most national banks.

The table below offers a quick look at a few choices you might consider. Average return rates are accurate as of the time of publishing. We’ll dive deeper into these options below.

1. Put Your Money In A High-Yield Savings Account

A high-yield savings account (HYSA) is one of the best ways to earn interest on savings. Similar to a traditional savings account, a HYSA has a significantly higher annual percentage yield (APY). Money in a typical savings account earns interest at an average rate of .47%, while the average HYSA annual percentage yield is 4% – 5%, nearly 10 times higher.

For example, say you open a savings account with $1,000 and add nothing else throughout the year. At .47% APY, you’ll earn $4.70 per year. Meanwhile, with a HYSA at 4% APY, you’ll make $40 yearly – and the more money you contribute, the more interest you’ll earn. Although interest rates fluctuate with market conditions, the rate of return on a HYSA will likely always exceed that of a traditional savings account.

While not all HYSAs have minimum requirements, the opportunity to earn higher returns may come with higher standards. For example, some HYSAs may require a minimum opening deposit or specific account balance. Further, most HYSAs are available through online banks, though some brick-and-mortar banks may offer them too.

You can usually withdraw HYSA funds as needed, though some institutions only allow up to six withdrawals per month.

2. Open A Money Market Account

Like HYSAs, market money accounts have higher return rates than traditional savings accounts, but lower than HYSAs. Money market account rates also follow market trends. The difference is you more commonly need a minimum deposit to open a money market account. You may also need to maintain a minimum balance to avoid being hit with monthly fees.

The national average money market return rate was .66% in mid-April 2024, according to the Federal Deposit Insurance Corporation (FDIC). While this rate is lower than other interest-bearing options, these accounts do have perks.

Money market accounts can be a good middle ground if you want your savings to be somewhat liquid. You may enjoy check-writing privileges or the ability to access funds with a debit card. Some financial institutions limit how many withdrawals you can take per month.

3. Use A Certificate Of Deposit Account

You can get a certificate of deposit (CD) at many banks and credit unions. A CD is a time deposit, meaning you agree to leave money in the account for a set period of time. You’ll deposit a lump sum that you can’t withdraw until the maturity date. Terms can range from months to years, and in return for keeping your money in a CD for the agreed amount of time, you’ll likely earn more interest than a traditional savings account.

When the account hits the maturity date, you can take the money or roll it into a new CD to grow. If you roll your funds into a new CD, you won’t be able to access them until the new account reaches maturity. Some CD accounts have minimum deposit requirements, but many don’t.

CDs have fixed interest rates which differ depending on how long you agree to keep the money in the account. ACD with a longer term tends to have a higher interest rate, though this may not always be the case depending on market conditions

A unique feature of CDs is the opportunity they offer to build a CD ladder. This strategy involves putting the same amount of money in CDs with different terms at one time. This allows you to reap the benefits of various return rates, without the stress of market conditions affecting them. Plus, you’ll gradually gain access to your money as each account matures.

4. Look Into Rewards Checking Accounts

Some institutions offer checking accounts with high interest. If you want the freedom to withdraw funds without limits, this could be a good option to consider. Plus, you can earn rewards such as cash back on purchases you make with the debit card linked to the account.

Some rewards checking accounts have minimum deposit and balance requirements. If you don’t need to meet these requirements to open the account, you may need to meet them to qualify for a higher APY. You may also need to set up direct deposit or make a certain number of monthly purchases. Consider shopping around to ensure you find the best checking account.

5. Buy Bonds

When you buy a bond, you lend money to an organization – typically a government or company. The organization you lend money to is the bond issuer, and you’re the bondholder. The bond issuer pays interest on the bond at a rate called the coupon rate until the bond hits maturity. Once the bond matures, you can access the original loan amount plus any earned interest.

Like CD terms, bond terms can range from months to years, and longer terms usually come with a higher rate. The term length and return rate vary with the type of bond you purchase. Common bonds include treasury bonds and savings bonds.

How To Calculate Interest Earned On A Savings Account

Now that you’ve explored ways to earn interest on money, you may want to calculate how an interest-earning savings account would look for your personal finances.

To calculate how much interest your savings account will earn, use the following formula:

Interest = P × R × T

In this equation, P stands for the principal amount or beginning balance, R is the interest rate (reflected as a decimal point) and T is the amount of time (typically per one year).

Imagine you have $5,000 in a savings account earning 5% in interest per year. Using the formula, this would look like: Interest = $5,000 x .05 x 1. You’d earn $250 in interest per year. And if your account also offers compound interest, your interest could earn interest, benefitting you even more.

The Bottom Line

The best way to earn interest – whether in a bank account, bond or elsewhere – will depend on your financial goals. If you want to learn more before making a decision, do some research, shop around, reach out to your financial institution or consult a financial advisor to explore competitive rates.

As you start seeing returns on your cash, you can use the Rocket Money^SM app to track interest earnings on all your accounts. Download the app today so you can keep up with your financial growth in one central location.