These days, with CD rates so low, you may be hard-pressed to find an investor who is buying certificates of deposit specifically for their yield. Though the end of such dismally low rates may be near, for some people it cannot come fast enough. But your money has to go somewhere, right? There are not any other kinds of options that offer the same rewards and returns as certificates of deposit do, but there are a few good places to put your money while you hold out for better CD rates.
Alternatives to CDs
- Money market accounts – Just like CDs, money market accounts come backed with a $25,000 insurance guarantee from the Federal Deposit Insurance Corp. However, unlike most CDs (not counting Liquid CDs), money markets are considered liquid accounts. This means that if a better deal or better interest rate happens to come along you can withdraw your money from the account without incurring any early withdrawal penalties. Just know that the yield on these accounts is pretty low, and you should certainly look for an account that waives the monthly maintenance fee.
- High-yield checking accounts – This accounts come with more stipulations, but the average interest rate yield is much higher than a money market account. The downside is that there are the regular checking account factors to deal with, such as debit card and direct deposit balance requirements and account balance caps.
- Money market funds – These are short-term options that invest in things like commercial paper and U.S. Treasury Bills. Money market funds are like money market accounts in that they offer a decent yield (still smaller than a CD though) and some liquidity. But their biggest difference, and their downside, is that they are mutual funds instead of bank accounts and thus not insured by the FDIC. These funds can also incur expenses from time to time that are passed on to the investor, decreasing their overall value.
Thankfully there are other relatively safe options of where to put your money, and these are three of the best. Obviously these alternatives are not certificates of deposit and so they do not have the same benefits and yields. However they are decent places to store your funds while you eagerly await the return of high CD rates.