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With Interest Rates Still Low, Are Savings Accounts Worth It?

With interest rates at historic lows, savings accounts pay little interest each month. Is it worth having a savings account?

March 9, 2022

The interest rate paid on savings accounts is at a historic low. In February 2022, the average savings account interest rate was just 0.06%

To put that into perspective, if $10,000 was in a typical savings account, it’d earn just $6 over an entire year. That’s just $0.50 per month in interest. 

Practically speaking, interest rates are so low that savings accounts essentially pay nothing. Even if you have substantial savings, the interest doesn’t add up to much. 

Are savings accounts worth it in this interest rate environment? Is it worth having a savings account if you’ll earn next to nothing in interest?

Are savings accounts worth it in 2022?

Is it worth having a savings account when the typical interest rate is low?

The quick answer is yes — savings accounts are still worth it. Here’s why: 

Savings accounts still pay more interest than checking accounts

Many checking accounts today pay 0% interest. So although the interest on savings accounts is meager, it still beats earning nothing in interest on your checking account funds. 

Savings goals

If you keep all your money in a single checking account, it can be hard to progress towards your financial goals. Put simply, when all your funds are in one account, it’s easier to spend rather than save. 

With a checking and savings account, you can separate funds, making it more likely that you’ll stick to your plan and avoid spending that money.

Savings accounts are risk-free

Keeping your money in a savings account keeps it safe. Most banks have FDIC insurance, which means that even if the bank goes out of business or gets robbed, your money is insured up to $250,000. 

While investing could grow your money more over time, it also comes with greater risk. Savings accounts present a safe, stable way to grow your money. 

Rates may rise soon

The Federal Reserve is expected to raise interest rates multiples times in 2022 and beyond. Although the Federal rate doesn’t immediately affect savings account interest rates, it will likely increase savings rates eventually. 

Savings account alternatives

If you’re not satisfied with the interest rates on your savings account, where else can you park your money? Here are some options.

High-yield savings accounts

A high-yield savings account pays above-average interest rates. As of early 2022, many accounts pay 0.5%. The rate is still low but higher than the savings account average of 0.06%. 

Online banks offer these accounts. You’ll likely need to open a separate account at a new bank to take advantage, but it can be worth it if the difference in interest available is substantial. 

Certificate of deposit (CD)

A certificate of deposit (CD) is a financial product available from most banks. They’re like mini savings accounts, except they lock up funds for a certain period. For instance, you can buy a 3-month CD or a 5-year CD. 

CDs pay higher interest rates than most savings accounts in exchange for less liquidity. The longer the term of the CD, the higher the interest rate will generally be. 

Series-I savings bonds

The U.S. government sells Series-I Bonds, better known as “I-Bonds.” They’re designed to pay the current rate of inflation as interest. So if inflation is low, they pay a low-interest rate. When inflation is high — as it is currently — I-Bonds pay high-interest rates. 

As of early 2022, I-Bonds currently pay 7.12% in interest, and this rate changes every six months and is based on the current inflation rate. 

You can buy up to $10,000 of I-Bonds per year, per person. They’re only available to U.S. citizens, and you can’t redeem them for the first 12 months, and there’s a small penalty if you redeem them before five years. Because of these restrictions, I-Bonds are best suited for medium-term financial goals and long-term cash savings. 

Bonds or bond funds

Savers can purchase various other types of bonds, ranging from ultra-safe U.S. Government bonds to more risky corporate bonds or municipal bonds. 

When you buy a bond, you purchase it for a set amount of money and a predetermined time frame; for example, $5,000 and 5 years. The company or government you buy the bond from promises to pay you back the $5,000 after those five years, along with interest along the way. 

You can buy individual bonds or invest in bond ETFs and mutual funds, which give you access to various bonds in one basket. 

Stocks or stock funds

Stocks, also known as equities, are a powerful way to build long-term wealth. However, they’re risky and can be volatile. Stocks are generally suited for long-term savings rather than for money you may need soon. 

You can buy stocks in individual companies or ETFs that track a wide variety of companies. S&P 500 index funds, for example, allow you to invest in 500+ of the largest publicly traded companies in America, all at once. 

Read our investing 101 guide to learn more about stocks.

Before taking on savings account alternatives, reach out to your financial advisor to decide if it's right for you.

Wrapping up — are savings accounts worth it?

Savings accounts aren’t the fastest way to grow your money, as they pay very little in interest. 

However, that doesn’t mean they’re not worthwhile.

These accounts are 100% safe, as they are FDIC insured. They’re liquid, meaning you can access the funds at any time. And they’re easy to use and (usually) free.  

There’s not much downside to using a savings account. With that said, there are certainly alternatives that could pay you more in interest. As always, it’s worth considering all your options. 

Do you have credit card debt you want to pay off? Tally† may be able to help. Tally helps qualifying Americans get out of credit card debt faster while paying less interest. Learn how Tally works here

This article is provided for informational purposes only and should not be construed as legal or investment advice. Always consult with a professional financial or investment advisor before making investment decisions.

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.