How to earn 5% or more on your savings without locking your money up

Interest rates are high right now. And, you are likely well aware of the issue if you’ve been house shopping or have opened a credit card statement recently. However, today’s high rates aren’t just affecting lending products. They’re also impacting the rates offered on deposit accounts, too, like certificates of deposit (CDs). These accounts give you a way to tap into today’s high rates — but you typically have to agree to lock your money up for the full CD term to take advantage of them. So, is there any way to earn competitive interest — let’s say 5% or more — without locking your cash up in a CD?

How to earn 5% or more on your savings without locking your money up

One of the best ways to earn 5% on your money without agreeing to leave it untouched for a CD term that is months- or years-long is to open a high-yield savings account. These accounts are similar to traditional savings accounts in that they offer a safe and accessible place to store your money. The difference between the two is the interest rates that are offered. According to the FDIC, the average rate offered on a regular savings account is currently 0.46%. So, money put into the average savings account is losing buying power now that the current inflation rate is at 3.1%. The good news is that leading high-yield savings accounts offer a significantly higher return, with rates on some of the best high-yield savings accounts that can be 10 times higher or more compared to regular accounts. And, you don’t have to lock your money away for months or years to access these rates. But there’s a caveat. High-yield savings accounts come with variable interest rates so if the overall rate environment declines, the rate on your high-yield account will probably drop in tandem.

Benefits of opening a high-yield savings account

There are several benefits to opening a high-yield savings account. Some of the most important are:

High returns

“One of the key advantages lies in the ability to earn a more competitive interest rate compared to traditional savings accounts,” says Dutch Mendenhell, author of the book, Money Shackles: The Breakout Guide to Alternative Investing. “This becomes particularly significant in a low-interest-rate environment, offering individuals a means to optimize returns.” Some of the best high-yield savings accounts currently offer interest rates from 4.35% to 5.25% or more. That can result in impressive returns for an account with virtually no risk. For example, if your high-yield account had a rate of 4.35% and a balance of $20,000, and you were to leave the money untouched for a year, you would earn a total of $870 in interest — with a total ending balance of $20,870. Or, if you were to earn a rate of 5.25% on the same balance for a year, your interest earnings would climb to $1,050 by the end of the year — leaving you with a total balance of $21,050.

Liquidity

The biggest advantage a high-yield savings account has over a CD is liquidity. “A high-yield savings account will allow you to withdraw that money when you need it,” says Douglas Feldman, chief investment officer at Stash. “A CD comes with a fixed interest rate for a set term (usually between six months and six years) which defeats the purpose of having it for urgent emergencies. If you withdraw your money from the CD before the term is over, you’ll generally lose some of the interest you’ve earned or you may face a withdrawal penalty.” Liquidity is what makes a high-yield savings account a smart choice for your emergency savings. This type of account has the potential to generate a meaningful return while giving you access to your money when you need it.

Safety

High-yield savings accounts are generally safe. That’s because they usually come with either FDIC or NCUA insurance on balances up to $250,000. That insurance allows you to recoup your losses if the financial institution you bank with goes out of business or otherwise fails to meet its obligations.

Accessibility

“These accounts typically have no monthly fees or minimum balance requirements, making them accessible to a wide range of people,” says Justin Stivers, financial advisor and founding attorney at Stivers Law. So, whether you have $100 or $100,000 in savings, you can typically find a high-yield savings account that meets your needs with few or no fees. Compare leading options and take advantage of the benefits of high-yield savings accounts now.

The bottom line

Today’s CDs allow you to earn 5% or more on your money, but if you don’t want to lock your cash up, it may not be your best option. A high-yield savings account could be the alternative you’re looking for. While these accounts have variable interest rates, they also come with high rates right now and make it easy to tap into your cash when you need to.