CDs or Savings Accounts in Today's Low-Rate Environment?

With CD rates so low these days, is it better to keep more of your money in savings accounts? I'm sure many savers have long-term CDs that are maturing. Those long-term CDs probably had rates over 4 percent. Now it's difficult to find CDs with 2 percent rates. Instead of opening a new long-term CD, another alternative is to just move that money into a savings or money market account. With some effort, you can get rates that aren't much lower than the long-term CD rates.

Savings and Money Market Accounts

One strategy is to stick with internet savings and money market accounts. To get the best rates you will probably have to move your money at least twice a year. By taking advantage of intro rates, new internet banks and promos from old banks, you can maximize your return. Last year I reviewed this strategy and its returns for the previous three years.

If you're going to try this strategy today, you might want to consider the 1.25% intro rates at EverBank and at Salem Five Direct. If you're no longer eligible for those intro rates, you can get 1.05% APY in money market accounts at four internet banks. You can also get 1.10% APY at AmericaNet Bank and its two sister banks, but this is limited to a $35K balance.

Savings Accounts Plus Short-Term CD Deals

One advantage of keeping your money in savings and money market accounts is that it makes it easy to take advantage of CD deals that pop up. Those CD deals can boost your returns without giving up too much liquidity. A good example of this was the 1.50% 8-month CD special that DCU offered last year (no longer available). The best CD deal today is at PenFed which is offering a 1.25% APY 1-year CD, a 1.60% APY 2-year CD and a 1.85% APY 3-year CD (as of 1/21/2013)

Reward Checking Accounts

Over the last five years, reward checking accounts have allowed savers to earn more than they could earn with internet savings accounts. It has required more work. The toughest has been the required monthly debit card purchases. Also, the balance caps have made it difficult for those with large savings. Last year I reviewed how much extra interest you could earn with reward checking accounts over the last three years. Like internet savings accounts, maximizing returns requires moving to new rate leaders at least once a year.

If you're lucky, you'll have some good local reward checking deals. You can find reward checking accounts available in your state by using our reward checking table. You can also use the table to find reward checking accounts available nationwide. Refer to this post to learn how to use the table. If you're new to reward checking accounts, please refer to my post 10 Common Traits of High-Yield Reward Checking Accounts.

Other Strategies

For money that you want to keep in banks and credit unions, another strategy is choosing long-term CDs with mild early withdrawal penalties. Some institutions to consider for this strategy include Ally Bank, Barclays, Discover Bank and PenFed. As we have discussed many times, there are risks with using this strategy. There's a possibility that a bank will refuse an early withdrawal request, and it's possible that a bank will raise the penalty for an early withdrawal. My last review of these risks was in my report of Ally Bank's disclosure change.

Finally, don't forget traditional CD ladders. Last year I reviewed CD ladders and asked if CD ladders still make sense. Several readers who have been investing in CDs for decades have said they have rarely if ever regretted going long on their CDs.

What strategies are using for your bank accounts to maximize your returns?