There are several good alternatives to savings accounts, including certificates of deposit (CDs), money market accounts (MMAs), and U.S. government securities. These are all relatively safe places to invest your money, with deposits guaranteed by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).
CDs, MMAs, and U.S. government securities also offer some return on your money in the form of interest. If you prioritize keeping your money safe, you may want to ensure easy access and relatively low fees above high returns—but there are many safe accounts with good yields, so you don't necessarily need to choose between safety and high returns.
Key Takeaways
- Deposit insurance for savings accounts covers $250,000, as guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts.
- Certificates of deposit issued by banks and credit unions are also insured for up to $250,000, guaranteeing your deposit and any interest returns you earn.
- Money market accounts are worth considering as well; they're FDIC-insured, and combine features of checking and savings accounts.
- U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt.
See the best CD rates or best MMA rates available today, or learn how to buy Treasury bonds and bills. If you're still considering savings accounts, check what you could earn with the best high-yield savings accounts.
Certificates of Deposit
Certificates of deposit issued by banks and credit unions carry up to $250,000 in deposit insurance (assuming the bank or credit union is insured). A CD requires you to lock up your investment for a specified period, from several months to several years. You can't add more money to the CD during this time.
You'll usually pay a penalty if you want to access your money before the CD matures. The penalty varies but usually adds up to several months' interest. However, many CD types are available, including no-penalty CDs, step-up CDs, and raise-your-rate CDs, which can help relieve the interest rate or term-length risks.
Typically, CDs with longer terms pay more interest than CDs with shorter terms, although this isn't always true. Depending on the current rate environment, you may find that CDs tend to have better rates than savings accounts, or vice versa.
A CD ladder can help grow your earnings while providing periodic access to your money. With a CD ladder strategy, you open several CDs with different maturities. For example, you might open one 6-month CD, one 12-month CD, and one 18-month CD. As each CD matures, you can decide whether to withdraw or reinvest the money. This strategy may offer you greater flexibility and less risk than opening one CD (with one maturity date).
Even savings accounts aren't totally risk-free. For example, if you leave your money in a savings account earning a low interest rate, your money's growth may not keep up with inflation. After considering inflation, the $1,000 you put in last year may be worth less next year. You might also miss out on earning a higher return elsewhere.
Money Market Accounts
Money market accounts are FDIC- or NCUA-insured, up to $250,000 per depositor, per bank. They earn interest and combine many of the features of checking and savings accounts, making them a good choice if you want to grow your money while maintaining easy access to it. MMAs typically come with debit cards and limited check-writing privileges.
Money market accounts often have fees, along with minimum opening deposit requirements and minimum balance requirements. Transaction and withdrawal limits may apply. The best money market account rates may rival those of the best CDs and savings accounts.
U.S. Government Securities
The federal government offers three categories offixed-income securitiesto consumers and investors. U.S. government securities—such as Treasury notes, bills, and bonds—have historically been considered extremely safe because the U.S. government has never defaulted on its debt. Treasury securities may pay interest at higher rates than savings accounts, although it depends on the security's duration.
U.S. Treasury Bills
U.S. Treasury bills, also called T-bills, are federal, short-term debt obligationswith a maturity of one year or less. The longer the maturity, the more interest the investor earns. Investors can purchase T-bills in increments of $100 through the secondary market in various ways, such as through a broker or investment bank or at auction on theTreasuryDirect.gov website.
U.S. Treasury Bonds
U.S. Treasury bonds, also referred to as T-bonds, take the longest to mature ofthe three types of government-issued securities. They also pay the highest interest rates. They are offered to investors for a term of 20 or 30 years to maturity.
Investors can purchase T-bonds at monthly online auctions held directly by the U.S. Treasury; they are sold in increments of $100. Purchasers of T-bondsreceive a fixed interest paymentevery six months.
You'll lose money if you sell a U.S. government security before it matures. Investors need to consider their timelines carefully before buying.
U.S. Treasury Notes
U.S. Treasury notes, also called T-notes, are similar to T-bonds. The difference is that T-notes are offered in a wide range of terms (from two years to 10 years). While T-notes do not generate yields as high as T-bonds, they do generate a payment for investors twice a year (or every six months). You can purchase T-notes in increments of $100.
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Advisor Insight
Mark Struthers, CFA, CFP®
Sona Financial, LLC, Minneapolis, MN
"Safe" is often a misused term. Most consider U.S. government treasuries as safe because if held to maturity, they have a guaranteed return of principal. What is often missed is that inflation can erode the purchasing power of that income stream and principal. Depending on your age and intention, if you have a low risk tolerance and are looking for low-cost, transparent options, then I-Bonds and Treasury Inflation-Protected Securities (TIPs) are great options. If you own them individually, they can be held to maturity, and the government backs the return of principal. Plus, their values/payments are adjusted for inflation.
Frequently Asked Questions (FAQs)
Where Is the Smartest Place to Keep Money?
The smartest place to keep your money depends on how easily you want to withdraw your money, whether you want your funds to be insured, and the returns you hope to get. Compare rates and terms for:
- High-yield savings accounts
- Certificates of deposit (CDs)
- High-yield checking accounts
- Money market accounts
- Treasury bills
How Can I Protect My Money From a Bank Collapse?
As long as the financial institution is insured by the FDIC or NCUA, the money you put into a deposit account at a bank or credit union is insured for up to $250,000 per depositor, per bank. If the bank collapses or fails, you can still get your money back within a few days of the bank's closure. If you have more than $250,000, you may want to spread it throughout multiple banks to avoid uninsured deposits.
Where Is the Safest Place To Keep Cash?
Deposit accounts—like savings accounts, CDs, MMAs, and checking accounts—are a safe place to keep money because consumer deposits are insured for up to $250,000, either by the FDIC or NCUA. If you want to store cash at home, you might consider keeping it with copies of your important paper documents in a waterproof, fireproof safe.
The Bottom Line
If you're seeking a safe place to keep your money besides a savings account, you have several alternatives to explore. Consider how soon and how often you might need to access your cash—many options don't offer the liquidity of a savings account. Depending on the account, you might face withdrawal limits or pay a penalty to withdraw your money before the account reaches maturity.
