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6 Alternatives to Savings Account for Higher Returns Research Team | Posted On Tuesday, December 17,2019, 03:38 PM

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6 Alternatives to Savings Account for Higher Returns



While most of us like to save our money in a savings bank account, the returns percentage in such account does not help in yielding good returns on deposits. The interest rate on a savings account is calculated on an everyday basis and is credited at the end of every quarter. Since the rate of interest provided on deposits is relatively lower in a savings account, it has lead depositors to look for alternatives to get better returns on savings.

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6 Alternatives to Savings Account for Higher Returns:

Some of the alternative investment options are:

-Invest in Money Market Accounts:

A money market account is almost similar to traditional savings account except for some limitations. Investing in these accounts will allow you to earn interest based on the prevailing interest rate in the money market. Money market accounts are known to pay a better interest rate on deposits for meeting standards like a minimum balance and a limited number of withdrawals each month. While parking your money in money market accounts you can avail additional benefits like the facility of writing cheques and thus it bears features of both savings and current accounts. 

See Also: Types of Bank Accounts That You Must Know

-Certificates of Deposit:

If you have surplus money in your savings account and you can spare some cash for a while, then you may consider investing in a certificate of deposit. A certificate of deposit works in a similar manner as bank fixed deposits, however, the interest rate on CDs are higher. CDs are held for a specific period and require you to invest an amount in higher denomination only.

As an investor, you must know your financial standing and then engage your money in a CD because your money becomes inaccessible when tied up in a CD account. A wise investor will opt for CD laddering with different maturity dates to help reduce the risk and get money at different points in time. CDs give investors greater flexibility in terms of utilization of their short-term funds.

-Invest in Liquid Funds:

When your main objective is to put your money in an alternate account other than bank savings account then liquid funds can be an option too. Liquid funds are known to bear low-risk and these are open-ended schemes that come with short maturities. The Liquid fund serves to offer capital protection while maintaining the liquidity of your funds. You can make around 7-8% per annum on such investments and you can redeem the funds within a day’s notice.

So if you want to park surplus cash for a few days then liquid funds are the best. You can access your money at short intervals while earning interest equivalent to fixed deposits.

See Also: Current Bank Account vs. Saving Bank Account

-Ultra Short Term Funds:

If you do not require your emergency funds in the next 2-3 months, then you can park your idle money in ultra short-term funds. These funds have short maturities of less than a year. These funds bear the extremely low risk and generate better returns when compared to savings bank accounts. These funds are one of the best ways to park money for a couple of weeks to a few months. Ultra short funds are also a great alternative to RD accounts. These funds are slightly above liquid funds when it comes to their risk exposure.

Since these accounts come with no lock-in these funds are a great alternative to savings bank accounts. You can also maintain the liquidity of your deposits as the withdrawal amount is directly transferred to your bank account within 1 business day.

-Invest in Government Bonds:

When it comes to investment, government bonds are one of the safest options for investors. If you are in search of options to park your surplus funds then you can opt for government bonds. Government bonds are issued by the RBI through the non-competitive bidding facility and investors can buy it through auctions. You can invest in bonds through the mutual fund route or invest directly from the government. Since bonds are traded at high face value, investing in bonds through brokerage firms is convenient as it allows you to invest as per your investment capacity.

Since government bonds are known to carry the lowest amount of risk, these can prove to be great alternatives to a savings account.

See Also: Savings Account - Types, Features and Documents Required

-Invest in banking and PSU debt mutual fund:

These funds are known to invest mainly in bonds issued by banks, PSUs and public financial institutionsHowever, if your investment horizon is sort then liquid funds or short-term debt funds should be your choice. Debt mutual funds are good options if investors are willing to invest for 3 years or more.

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