8 Ways to Earn More on Your Savings
Your interest rate really matters.
Say, for example, you invested $100 a month into a savings account earning 0.45 percent interest – a common and pathetic rate for savings accounts these days. In 10 years, you’d have $12,376.92. But if you invested that same $100 into a stock portfolio that earned 4.7 percent interest, you’d have $15,526.80. That’s a difference of $3,149.88, just for investing at a higher rate.
But most savings accounts these days have dismal rates, so how do you beat the interest-rate game? In the video below, Money Talks News founder Stacy Johnson shares six ways you can earn more on your savings. Check it out and then read on for more…
Click here to watch ‘Earning More on Your Savings’ on MoneyTalksNews.com
Now let’s delve into the details about how to earn a higher interest rate using Stacy’s ideas, and give you a few more…
1. Shop around for savings accounts
Recently, MoneyRates.com conducted a survey on the best interest rates on savings accounts for the second quarter of 2012. The two best rates they found were a measly 0.84 and 0.85 percent.
Even though the best rates aren’t great ones, you should still earn as much as possible on your savings account. You can compare rates for most banks online: we have an online search for rates. But don’t end your search there. Smaller local banks and credit unions often have higher rates than the bigger banks that show up in these search engines, so check out local deals also.
2. Invest in stocks
Investing in stocks is obviously riskier than putting money into an insured savings account, but the rewards can be much bigger. In the video, Stacy said that AT&T’s recent price was $37 per share and AT&T paid 4.7 percent. (The percentage return you earn with dividends is calculated by dividing the dividend by the stock price.) That’s about 5 times the best interest rate MoneyRates.com found on a savings account.
AT&T is one of many dividend-paying stocks. Dividends are typically paid quarterly, can earn more than a savings account, and also have the potential to go up in value. But as with any stock, they can also go down. To learn more, check out How Dividend Stocks Can Help You Beat the Bank.
Investing in stocks may seem daunting. For example, just opening a brokerage account may seem like a hassle, and the amount required could seemingly exclude those with modest means. But there are ways around both issues. For example, in 4 Ways to Invest Without Much Money we explain direct investing: buying stock directly from companies in increments as little as one or two shares. First Share has a list of some of the companies that offer direct investments. It’s not comprehensive, but will give you an idea.
Other ideas for small investments:
Sharebuilder – $4.00 for automatic investments, $9.95 per trade, no monthly fees
Zecco – $4.95 per trade with no investment minimums
FOLIOfn – $29 monthly or $290 a year with no investment minimums
BuyAndHold.com – $6.99 per month with two free trades and no investment minimums
3. Mutual funds
One of the keys to investing on Wall Street is diversification: Buying a group of securities is much safer than just buying one or two. That’s the idea behind mutual funds. With a mutual fund, your money is pooled with other investors and invested into a basket of stocks, bonds or both.
There are dozens of mutual funds available, but in Ask Stacy: How Do I Get Started Investing? Stacy recommended the Vanguard 500 Index Fund. Here is what he had to say about it:
One fund to consider is the Vanguard 500 Index fund. As the name implies, it owns the shares of 500 of the largest companies in America. The minimum investment is $3,000, but it costs nothing to buy or sell shares in the fund. There is an annual management fee, but it’s only 0.17 percent – pretty small for a mutual fund. The fund, like the stock market overall, hasn’t done well over the last 1, 5, or 10 years. But it’s averaged better than 10 percent per year since its inception in 1976.
4. Bonds
As Stacy said in the video, bonds are basically IOUs from companies or federal and state government agencies. When you buy bonds, you’re basically loaning money. The money you loan earns interest and you can either hold the bond until it matures or sell it on the open market prior to maturity for its current market price.
Bonds are generally considered to be lower risk than stocks, and as a result don’t offer as high a potential for reward. But many low-risk bonds still offer a higher interest rate than you’d earn from a bank. The safest bonds are those issued by Uncle Sam: read about them at TreasuryDirect.
5. Peer-to-peer lending
With peer-to-peer lending, you’re the bank. Individuals post loan requests on different peer-to-peer lending sites. You fund the loan and earn an interest rate in return. In the video, Stacy interviewed a man who has been doing this since 2009 and has thus far has earned 13.26 percent on his money.
As you might expect, this investment model isn’t without risks. In 4 Things to Know About Peer-to-Peer Lending, we covered four risks to consider:
Nothing is insured: The borrower may default on the loan. Even if they eventually pay, if it goes to collection, you’ll pay a fee of up to 35 percent of the amount collected.
Default rate: These sites screen borrowers for creditworthiness, so the risk of default is lower. But not eliminated.
Flexible risks and rewards: The amount of interest you’ll earn is based on a “grade” of their credit risk. For example, on one site we looked at, borrower rates varied from 7.39 to 23.48 percent, depending on credit-worthiness of the borrower.
Requirements: You’ll have to meet the lending sites’ requirements to start lending. For example, some sites only accept people with certain income levels, and others accept lenders only from certain states.
If you’re ready to head into peer-to-peer lending, check out:
Prosper
Lending Club
6. Real estate
If you have the money, the time, the expertise, and the patience, real estate can be a good long-term investment. As a child of two landlords, I can tell you this isn’t easy money. Being a landlord takes time and effort, tenants can be a hassle, and you’ll have to deal with repairs – but the rewards can make it worth it. Stacy’s been investing in real estate for decades: as he said in the video, he hopes to earn 5 percent on his most recent rental house, plus the opportunity for gains should housing rebound.
Interested in becoming a real estate investor? Check out 15 Ways to Find, Buy, and Rent Real Estate for tips to get you started.
7. Microloans
A relatively new concept, microloans are a way to earn interest on your money while helping out a good cause at the same time. With a microloan, you make a small loan to entrepreneurs across the globe. The entrepreneurs use your money to fund projects like farming in the Dominican Republic or green businesses in Argentina.
Of course, there are risks tied to the rewards. In Beating the Banks: Microloans, Stacy interviewed a man who invests with one microloan agency – Microplace. Check it out to hear his story and read more about microloan investesting.
8. Collecting
Most people collect things just for the sheer joy of ownership. I have a pretty large Star Wars collection, and while I couldn’t imagine parting with my life-sized Yoda or original AT-AT model, a properly curated collection can be a money-maker.
For example, check out Tips on Collecting From Some of the World’s Best, where Stacy interviews two brothers who recently auctioned their collection of cars, mechanical musical devices, and other goodies for nearly $40 million. They have some good advice for anyone interested in collecting for fun or profit.
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