8 Ways to Earn More on Your Savings

Photo (cc) by 401(K) 2012

Your interest rate really matters.

Invest $100 a month into a savings account and earn 0.45 percent, and in 10 years you’ll have $12,377. But if you invested that same $100 into a stock portfolio that earned 4.7 percent, you’d have $15,527. That’s an extra $3,150. Do it for 25 years and beat the bank by more than $25,000.

In the video below, CPA and former investment adviser Stacy Johnson shares six ways to earn more on your savings. Check it out, then read on for more…

Now let’s delve into the details on making your money work as hard for you as you do for it.

1. Shop around for savings accounts

Recently, MoneyRates.com conducted a survey on the best interest rates on savings accounts for the second quarter of 2012. The best rate they found was a measly 0.85 percent.

But no matter what the rate is, it makes sense to earn the highest possible. There’s no reason so settle for .4 percent if you can earn .8. You can compare rates for most banks online: we have an online search for rates. But don’t end your search there. Smaller local banks and credit unions often have higher rates than the bigger banks that show up in these search engines, so check local deals also.

2. Invest in stocks

Investing in stocks is obviously riskier than putting money into an insured savings account, but the rewards can be much higher. In the video, Stacy offered AT&T as an example. At its recent price of $37 per share, the $1.76 dividend amounts to 4.7 percent. (The percentage return you earn with dividends is calculated by dividing the annual dividend by the stock price.) That’s about 5 times the best interest rate MoneyRates.com found on a savings account.

Not all stocks pay dividends, and among those that do, not many are as rich as AT&T’s. And while stocks have the potential to go up in value, they can also go down. So you should never invest money you’ll need within 5 years, and you should always do plenty of research before investing. To learn more, check out How Dividend Stocks Can Help You Beat the Bank.

Investing in stocks isn’t as easy as a trip to the bank. For example, just opening a brokerage account can seem a hassle, and the amounts required to buy 100 shares of a stock could exclude those with modest means. But there are ways around both issues. For example, in 4 Ways to Invest Without Much Money we explain direct investing: buying stock directly from companies in increments as little as one or two shares. First Share has a list of some of the companies that offer direct investments.

Other ideas to start with small sums:

  • Sharebuilder – $4.00 for automatic investments, $9.95 per trade, no monthly fees
  • Zecco – $4.95 per trade with no investment minimums
  • FOLIOfn – $29 monthly or $290 a year with no investment minimums
  • BuyAndHold.com – $6.99 per month with two free trades and no investment minimums

3. Mutual funds

One of the keys to investing on Wall Street is diversification: spreading your money out over a group of stocks or bonds is safer than just buying one or two. That’s the idea behind mutual funds. With a mutual fund, your money is pooled with other investors and invested into a big basket of stocks, bonds or both.

There are dozens of mutual funds available that invest in just about every kind of security, from government bonds to Chinese stocks. But for a solid, American-based stock investment, Stacy recently recommended the Vanguard 500 Index Fund. From Ask Stacy: How Do I Get Started Investing?

One fund to consider is the Vanguard 500 Index fund. As the name implies, it owns the shares of 500 of the largest companies in America. The minimum investment is $3,000, but it costs nothing to buy or sell shares in the fund. There is an annual management fee, but it’s only 0.17 percent – pretty small for a mutual fund. The fund, like the stock market overall, hasn’t done well over the last 1, 5, or 10 years. But it’s averaged better than 10 percent per year since its inception in 1976.

4. Bonds

As Stacy said in the video, bonds are basically IOUs from companies or federal and state government agencies. When you buy bonds, you’re basically loaning money. The money you loan earns interest and you can either hold the bond until it matures or sell it on the open market prior to maturity for its then-current market price.

Bonds are generally considered to be lower risk than stocks, and as a result don’t offer as high a potential for reward. But many low-risk bonds still offer a higher interest rate than you’d earn from a bank. The safest bonds are those issued by Uncle Sam: read about them at TreasuryDirect.

5. Peer-to-peer lending

With peer-to-peer lending, you’re the bank. Individuals post loan requests on different peer-to-peer lending sites. You fund the loan and earn an interest rate in return. In the video, Stacy interviewed a man who has been doing this since 2009 and has thus far has earned 13.26 percent on his money.

As you might expect, this investment model isn’t without risks. In 4 Things to Know About Peer-to-Peer Lending, we covered three things to consider:

  1. Nothing is insured: The borrower may default on the loan. Even if they eventually pay, if it goes to collection, you’ll pay a fee of up to 35 percent of the amount collected.
  2. Flexible risks and rewards: The more risk you’re willing to assume, the more you earn. For example, on one site we looked at, rates varied from 7.39 to 23.48 percent, depending on credit-worthiness of the borrower.
  3. Requirements: Some sites only accept people with certain income levels, and others accept lenders only from certain states.

If you’re ready to head into peer-to-peer lending, check out:

6. Real estate

If you have the money, time, expertise, and patience, real estate can be a good long-term investment.

But as a child of two landlords, I can tell you this isn’t easy money. Rental housing takes time and effort, tenants can be a hassle, and you’ll have to deal with repairs – but the rewards can make it worth it. Stacy’s been investing in real estate for decades: as he said in the video, he hopes to earn 5 percent on his most recent rental house, plus the opportunity for gains should housing rebound.

Interested in becoming a real estate investor? Check out 15 Ways to Find, Buy, and Rent Real Estate for tips to get started.

7. Microloans

A relatively new concept, microloans are a way to help others while you help yourself. You make a small loan to entrepreneurs around the world – they use the money to fund projects ranging from farming in the Dominican Republic to green businesses in Argentina.

The projects you lend to are screened in advance, and the default rate is much lower than you’d imagine. Still, there’s always the risk that a good loan goes bad. In Beating the Banks: Microloans, Stacy interviewed a man who invests with one microloan agency – Microplace. Check it out to hear his story and read more about microloan investing.

8. Collecting

Most people collect things just for the sheer joy of ownership. I have a pretty large Star Wars collection, and while I couldn’t imagine parting with my life-sized Yoda or original AT-AT model, a properly curated collection can be a money-maker.

For example, check out Tips on Collecting From Some of the World’s Best, where Stacy interviews two brothers who recently auctioned their collection of cars, mechanical musical devices, and other goodies for nearly $40 million. They have some good advice for anyone interested in collecting for fun or profit.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
9 Ways to Get Cheap or Free Veterinary Care
9 Ways to Get Cheap or Free Veterinary Care

Medical care for your furry friends can be expensive. Here are some tips to take a bite out of vet bills.

This Chase Card Is Great for Groceries and Cash Back on Everything
This Chase Card Is Great for Groceries and Cash Back on Everything

You could earn more than $600 cash back in your first year just from grocery shopping.

This Is the Best Used Car You Can Buy
This Is the Best Used Car You Can Buy

This car combines reliability, safety and long-lasting value.

17 Home Upgrades That Rarely Help Close a Sale
17 Home Upgrades That Rarely Help Close a Sale

Real estate agents give these renovations low marks when it comes to helping sell homes.

11 Secret Uses for Everyday Items That Will Save You Money
11 Secret Uses for Everyday Items That Will Save You Money

These are simple solutions for life’s irritations.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

Why Cloth Masks May Increase Your Coronavirus Risk
Why Cloth Masks May Increase Your Coronavirus Risk

A new study finds that wearing a cloth mask can backfire if you don’t clean it properly.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

This Is the Cheapest Place to Buy a Used Car
This Is the Cheapest Place to Buy a Used Car

Looking for a good deal on a set of wheels? This should be your first stop.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

7 Surprising Features That Boost Your Home Value
7 Surprising Features That Boost Your Home Value

You can add value to your home without hiring a contractor to do expensive renovations.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.