10 places to stash your money besides a savings account
The long-awaited interest rate hike from the Fed finally arrived on December 16, 2015. But as of May 2016, it still hasn't affected the interest rate of most savings accounts. The national average savings account interest rate currently stands at a measly 0.06%, according to data from the Federal Deposit Insurance Corporation (FDIC). And some brick-and-mortar banks are offering rates as low as a pitiful 0.01%!
There are far better places to park your hard-earning savings. Let's review 10 places to stash cash besides a traditional bank savings account.
1. Online High Yield Savings Account
With the Internet taking over pretty much everything, it's not a surprise that it has also taken over banking. By putting your funds in an online savings account, you'll have access to higher yields. As of April 2016, you can find high-interest savings accounts with yields ranging from 0.75% with the Capital One 360 Savings Account, to 1.05% with the Synchrony Bank High Yield Savings Account. Make sure to read the fine print, though, because they may require minimum deposits and limit the times you can access funds per month. (See also: 5 Best Online Savings Accounts)
2. Certificate of Deposit
By tying up your money for a longer period of time, banks and credit unions are willing to offer you a higher interest rate. With terms ranging from one to 60 months, a certificate of deposit (CD) is a financial vehicle insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per account per depositor. Certificates of deposit can easily beat that 1.10%. For example, a credit union in Honolulu, Hawaii is currently offering 16-month and 60-month CDs with a 1.20% and 1.78% APR, respectively.
3. Series I Savings Bond
Backed by the full faith and credit of the U.S. government, Series I Savings Bonds (also referred to as "I Bonds") are adjusted for inflation every six months so the purchasing power of your savings stays intact. Earnings are exempt from state and local taxes and can be entirely tax-free when used for qualifying post-secondary education expenses. I Bonds are available on small denominations starting at $50 and can be bought online via TreasuryDirect or through your tax return using Form 8888, Allocation of Refund (Including Savings Bond Purchases).
For a long time, several countries, including the U.S. and the U.K., committed to fix the prices of their domestic currencies in terms of the market value of a specified amount of gold. Even though the market price of gold has proven to be quite volatile, it still could work as a good way to stash your savings, depending on your timing. When it comes to gold, history has proven that it's best to buy and hold for a long time. On May 1, 2006, the price of gold per ounce was $670.30 and on April 18, 2016, it was $1,245.68. That's an 85% total return for about 10 years. This is why investors still use gold to hedge against uncertainty and inflation.
5. Exchange Traded Fund for Precious Metals
Of course, buying and selling coins, bars, or privately minted coins of gold and silver requires skill, storage space, and knowledge of the commodities market. An alternative way to put your savings in gold and silver is to buy an exchange-traded fund (ETF) that tracks the market price of those precious metals. Some examples include the iShares Silver Trust [NYSEArca: SLV], SPDR Gold Shares [NYSEArca: GLD], ETFS Physical Silver [NYSEArca: SIVR], and iShares Gold Trust [NYSEArca: IAU].
6. Lego Sets
If the investment returns from gold impress you, wait until you hear that of Lego Sets:
- Imperial Star Destroyer was worth $249.99 in 2002 and today is worth about $2,185 (return: 774%)
- Death Star II was worth $372 in 2005 and today is worth about $2,270 (return: 510%)
- Taj Mahal was worth $134 in 2007 and today is worth about $2,753 (return: 1,954%)
Of course, you'll have to do some research to identify the most promising sets. With about 80 stores in the U.S., you'll have plenty of opportunities to play... ahem!... I mean, research.
7. Discount Gift Cards at Costco
Bulk buying 170 oz. detergent jugs and $4.99 roasted chickens aren't the only ways to let your dollar go the extra mile at Costco. You can stash your savings in discounted gift cards. For example, you can currently get two $50 gift cards for Buca di Beppo for $76.99 ($74.99 plus $2 for shipping and handling) at the Costco website. By planning out your purchases of discount gift cards for restaurants and other retailers, you can get a better return than that of a savings account.
8. Christmas Club
Another alternative to savings accounts is the Christmas club, which will hold money put aside for future holiday spending. Also known as Christmas savings accounts, Christmas clubs are available at over 70% of U.S. credit unions. By committing to hold your funds in the account for a predetermined period (e.g. November 1st), a credit union will pay you a higher interest rate than that of its regular savings account. The catch is that if you withdraw the funds before the deadline, you'll be charged a steep fee that nullifies all your interest gains. (See also: 9 Good Reasons to Choose a Credit Union Instead of a Bank)
9. Peer-to-Peer Lending
Banks make a profit by taking your deposits and offering those monies as loans to other individuals at a higher interest rate. You, too, can take a crack at profiting from lending through peer-to-peer lending at sites including Prosper and Lending Club. With a minimum investment of $25, you could start investing in loans with an average annual interest rates ranging from 5.23% to 9.11%. By sticking with the highest grade of investment loans, you have a good chance at beating the annual percentage yield (APY) of any savings account.
10. Secured Credit Card
While secured credit cards can be useful to building or repairing your credit history, some of these cards also allow you to gain interest on your security deposit. For example, the USAA Secured Card American Express lets you gain 0.54% per year through a two-year CD. If you're considering to apply for a secured credit card, getting one that lets you make money on your secure deposit would let you kill two birds with one stone.
What are other great places to stash away your savings?
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