Dear Penny: Where Should I Put My Savings to Earn as Much Interest as Possible?
In February 2023, I took my money out of a non-interest-bearing checking account and put it in an account with a local credit union. For 13 months, it was earning high interest. When I bought a CD, the teller told me I needed to switch my account over to a money market, and I agreed. Although I am depositing $930 into my account monthly, the interest I am being paid now is lower than before when I just had a savings account. Should I switch back to the high interest savings account, go to a different place with my money or what? Thanks.
— Careful Saver
Dear Careful,
Kudos for keeping an eye on what your money is doing each month! A couple of things could be going on here.
A money market account (MMA) has a higher average interest rate than a checking or savings account, but it might require a higher balance to earn that rate. You might have been able to earn the highest rate available on your savings account with a lower balance requirement, but once you moved into the MMA, your balance might have put you below the threshold for a comparable interest rate.
Alternatively, your credit union might have reduced the interest rates it offers — though I think this is a less likely explanation in our current economic environment. The rates an account offers go up and down as the Fed rate does. The last Fed rate drop was in March of 2020, but average MMA rates have ticked down slightly in the past few months.
Before switching accounts again, check with your credit union to find out whether there’s a balance threshold you need to reach to get a higher interest rate on your MMA (and whether that higher rate applies to the full balance or only the amount above the threshold). If it feels feasible, make a plan to reach that amount.
If that’s not the issue, ask someone at the institution why you’re required to keep money in the MMA and what balance is required. Maybe you can keep the minimum required amount there and move the rest back into a high-yield savings account. It could also be that you were upsold into an MMA in order to receive a higher interest rate on your CD, but you could actually keep the CD without that account. Once you have a better understanding of how your credit union’s offerings work and what’s affecting that interest rate, you can make an informed decision about the best place for your money.
Dana Miranda is a Certified Educator in Personal Finance® and author of YOU DON’T NEED A BUDGET. She writes Healthy Rich, a newsletter about how capitalism impacts the ways we think, teach and talk about money.
