An illustration of stacks of cash

With the Federal Reserve signaling lower interest rates ahead, consumers may want to rethink where they deposit their money.

Don’t make radical changes based on Wednesday’s Fed statement. But if you’re keeping significant sums in a walk-in bank—where savings accounts can pay as little as 0.01 percent—you can certainly find higher rates with online banks and credit unions.

“Focus on what you can control,” says Benjamin Sullivan, a certified financial planner and portfolio manager at Palisades Hudson Financial Group in Austin, Texas. “You don’t have control over interest rates, but you do over what instrument or investment to choose.” 

More on Saving and Investing

Large national online players, such as BarclaysFirst Internet BankMarcus by Goldman Sachs, and Sallie Mae Bank, are currently paying interest rates of 2 percent or more on new online savings accounts and 2.6 percent or more on one-year certificates of deposit, says DepositAccounts.

Some smaller players are competitive, as well. VioBank, the internet banking division of MidFirst Bank, is offering a 2.52-percent annual percentage rate on savings accounts, with a $100 minimum balance and no monthly service charge. (Six withdrawals per statement cycle are free; after that, the bank charges a $10-per-withdrawal fee.)

As for CDs, First Internet Bank is paying 2.75 annual percentage yield (which is the rate plus the effect of compounding interest) on a 12-month CD, with a minimum deposit of $1,000. (There’s a penalty for early withdrawal.)

Savings and one-year CD rates are likely to stay the same for now, Sullivan says. Savings accounts typically move in tandem with the Fed’s changes to its short-term federal funds rate—the rate banks charge other banks for overnight loans. One-year CDs already reflect the market’s expectations about future rates.

And when you turn to taking a longer view, consider these four strategies for your savings. Bear in mind that there’s nothing to stop you from using more than one of them, depending on your goals.

Strategy: I Want Safety and Maximum Interest on Funds I Access Regularly

Online savings accounts currently offer yields of 2 percent or more annually. They’re among the safest savings vehicles, and up to $250,000 in deposits per holder, whether through a bank or a credit union, is covered by federal insurance. (A joint account with two holders is insured up to $500,000.)

You can find the rates offered for these high-paying accounts through websites such as DepositAccounts and Bankrate. (At DepositAccounts, scroll below the top listings, which paid for placement there; at BankRate, click on “APY” to get annual percentage yields in descending order.) Check the minimum deposit, fees, and features (such as ATM access and check writing). 

Note the limitations. Many of the higher-interest savings accounts, for instance, limit monthly withdrawals to six before a fee is charged.

Also check out the account’s rate history on DepositAccounts, says Allan Roth, chief executive of Wealth Logic, a financial planning firm based in Colorado Springs, Colo. If the account has been around several years, there’s less likelihood the current APY is a teaser rate that will drop later.

“You’re not locked in, but most people have better things to do than looking at rates and moving around their money,” Roth says.

Money market deposit accounts offer up to 2.50 percent these days. These accounts are similar to savings accounts, but with some additional benefits and restrictions. Offered by banks and credit unions, they’re insured like savings accounts, up to $250,000 per individual holder. Institutions are able to provide higher rates on these accounts by investing your money in secure, short-term Treasury debt.

If you can stash a significant amount in a money market account, you may benefit from more rate stability than in an online savings account, says DepositAccounts’ founder, Ken Tumin. That’s because some money market accounts offer higher rate tiers for balances above a certain amount—say, $10,000—and are less likely to change rates at those higher tiers later. 

Make sure the money market account has the features you need. Capital One, for instance, offers no debit cards or check writing with its 360 Money Market account.

At DepositAccounts, check customer reviews for consumer experiences opening, maintaining, and closing accounts. Also note the financial health of the bank, which DepositAccounts judges using a variety of well-accepted financial yardsticks. While your savings are insured and the percentage of banks with low ratings is tiny, avoiding D- or F-rated institutions could save you from hassles if you have to get your money in the event of default. 

Strategy: I Want High Returns and Convenience in Exchange for Some Risk

Money market funds are good options as a secondary savings account or to hold a portion of your emergency money. They are offered by mutual fund and investment companies.

Money market funds invest in debt: super-safe, short-term Treasury bills, plus short-term municipal and corporate debt (also known as “commercial paper”). While convenient to use if you also have a brokerage account, unlike savings and money market accounts they’re not insured.

“They’re low-risk, but there’s an incremental amount of risk over investing in high-yield savings accounts,” says Eric Bronnenkant, head of tax at Betterment, an online investment company based in New York City.

Roth says the best option now in money market funds is the Vanguard Treasury Money Market Fund, with a compound yield of 2.36 percent. Unlike corporate money market funds, the fund is fully backed by the U.S. Treasury. It’s also exempt from state income tax. But you must invest a minimum of $50,000. 

For as little as $3,000, you could invest in the Vanguard Federal Money Market Fund, yielding 2.32 percent. However, you won’t get an exemption on your state income tax on all of that yield, Roth says. 

While money market funds typically require a minimum deposit of $500 or more, there’s no limit on how much can be deposited or withdrawn after that initial deposit or how often you can make transactions. You can write checks, arrange for direct deposit, and, in some cases, use ATMs.

Check the net expense ratio, which should be well below 1 percent of assets. Investor shares of the Vanguard Prime Money Market Fund, for instance, charge 0.16 percent, or $1.60 per $1,000 invested. (The minimum initial investment is $3,000.) Compare expenses among money funds using the free Fund Analyzer sponsored by FINRA, the self-governing body of the investment industry.

Strategy: I'll Do Anything for the Highest Insured Yield

High-yield reward checking accounts offer relatively high interest—currently as much as 5.09 percent APY—and are federally insured up to $250,000. But the community banks and credit unions that offer them make account holders jump through hoops. While initial deposits and minimum balances are either nonexistent or very low, you typically must make six to 12 debit-card transactions per month, arrange for at least one direct deposit monthly, and sign up for electronic statements. There may be other rules, too. 

With these accounts you’ll get the top rate on high-yield checking up to a certain balance; above that limit, the interest drops sharply. Many such accounts, also called “rewards checking,” limit their high rates to balances of $10,000 or less.

Consumers Credit Union of Illinois’ Free Rewards Checking, for instance, has a current APY of 5.09 percent on the first $10,000 in savings and 0.20 percent to 0.1 percent after that. You also have to join the credit union (for a one-time $5 fee) and agree to receiving all-electronic documents. And each month you must make at least 12 debit-card transactions totaling $100; have $500 in direct deposits; and spend $1,000 or more with a CCU Visa card.

Tumin says some of his website readers report having a dozen or so such accounts at a time, each account holding just under the maximum to get the top rate.

 

Strategy: I Don’t Need to Touch My Savings for Several Months or a Year

Treasury bills of a year’s duration are being auctioned at about 2 percent this week. They carry an implicit insurance: They’re debt-backed by the full faith and credit of the U.S. government.

The minimum purchase is $100. You buy the bill at a discount and get the full price when it matures. For example, $200 worth of 52-week bills would cost around $196. You can buy these bills through a broker, but to avoid a fee, buy directly from the federal government at TreasuryDirect.gov. Check the latest rates here; to determine the interest you’ll get, take the “Price per $100” in the last column and subtract it from $100.

Bronnenkant mentions a benefit of this type of investment: The interest is exempt from state and local tax. If you live in a state with both, Treasuries are an attractive option for your cash.

The downside? Because you buy Treasuries at a discount, selling a bill before it’s due means you won’t get all the yield you expected. “There’s more liquidity than with CDs but some potential loss,” Bronnenkant says.

Certificates of deposit with terms of six months or more are easy to find with yields at 2.5 percent or higher. For one-year CDs, you can find APYs at nearly 3 percent. These time-based accounts, available through banks and credit unions, are federally insured up to $250,000.

Using a fixed-interest vehicle, such as a CD, could be worthwhile if you expect interest rates to drop. 

“You may get a little more return for locking up your money for one to two years,” Bronnenkant says. “The downside is, let’s say this is a short-term aberration and that interest rates go higher, you may have locked yourself into a lower rate.”