Personal Insights

3 Options for Saving Money in a Low-Interest-Rate Environment

If you’ve found a way to consistently save money, you may be on the path to long-term financial success. But once you’ve created an effective strategy for saving money, the next step is to find a smart place to deposit the money you’ve saved.

The best savings options are those that make your money work for you. However, in the current low-interest-rate environment, savings vehicles do not always offer high yields. To get the most from your hard-earned dollars, consider three strategies that may help you reach your savings goals.

Savings Option No. 1: Accounts that Offer Compounding Interest Rates

Although interest rates are low, a way to preserve your principal and grow your savings incrementally is to place your money in a compound interest-bearing savings account. Over time, you’ll earn money on both your principal and the interest earned. Accounts with shorter compounding periods (i.e. monthly rather than yearly) may offer greater returns. Learn more about how compounding interest rates work with Regions’ Benefits of Compounding calculator.

Savings Option No. 2: Certificates of Deposit

Buying certificates of deposit (CDs) that mature in different timeframes can help you navigate changes in the interest rate environment. For instance, if interest rates are low, you can purchase a one-year CD that offers a slightly higher interest rate than your savings account, but it also limits the access you have to your money. When the CD is up for renewal, you can get a better rate if the environment has improved. Additionally, you can usually lock in a higher interest rate by purchasing a longer-term CD; sometimes the yield curve is inverted (maturities further out on the curve yield less than short-term maturities).

If you separate your funds and place each portion in CDs with different yields and maturities — a strategy called laddering — you can diversify your savings portfolio. Laddering allows you to potentially reduce the interest rate risk involved in keeping your money in a single, low-yield account. It also may increase your liquidity, which allows you to take advantage of new savings opportunities when one of the CDs matures.  

Savings Option No. 3: Government Savings Bonds

Interest on both types of government savings bonds is earned monthly and compounded semiannually for up to 30 years. You’re able to cash in the bonds after 12 months, but you’ll lose the last three months’ interest if you redeem them during the first five years. 

The savings strategy that makes the most sense for you depends on your unique financial goals and your investment horizon. To discuss your individual situation and learn more about the available options, make an appointment with a banker.