Leave Your Bank: 9 More Profitable Options

Did you know the average interest rate paid on savings accounts is 0.06%? Only that looks absurd, but the fact that my bank pays even less than that is completely bonkers.

Indeed, the interest rate on my savings account at my bank is far lower than the national average. Yet the worst part is that U.S. Bank has kept paying me a pitiful interest rate for years.

The bank probably dislikes me. Do you see how this applies to your life?

Just look at the attached screenshot to see what I mean. The interest I got in the month I took this picture was $2.88, despite the fact that I had more than $329,000 in one of our savings accounts.

Sad as that is, I know I’m not alone in feeling this way. At least half of you reading this are making that much, or less, from your savings.

As is well knowledge, interest rates have been historically low for a long time now, leaving banks with very little to offer in the way of competitive products or services.

Fortunately, we aren’t stuck with a pitiful return on our money. As compared to the returns offered by a conventional bank, there are a number of other ways to invest your saved money.

Among the suggestions, I present here is one that offers 850 times the rate offered by a typical commercial bank.

But, before we delve into the best banking alternatives, I do want to emphasize the significance of having a rainy-day fund. Long-term savings may be the only thing that keeps you from falling into financial ruin in the event that you lose your job or experience some other form of unforeseeable financial calamity.

I agree with the advice that you should have three to six months of living expenses stowed up in case of an emergency. Nonetheless, I believe that the size of your emergency fund should be determined by your own circumstances and requirements.

If you’re self-employed or have kids, for instance, you may desire a larger emergency fund than if you’re single, have very minimal expenses, or have a very secure employment.

Either way, the alternatives to banks that I’ll discuss below shouldn’t be used for your primary emergency fund. Your electronic funds should be kept in an FDIC-insured bank account. While interest rates at conventional banks may be low, your savings are safe from loss.

The Top 9 Interest-Bearing Financial Options:

Because of this, the banking options I propose are meant for any money you have that isn’t set aside for an actual emergency. Since you won’t need this sum anytime soon, you can afford to take more chances with your investments.

What do I mean by “banking alternatives?” Down below, I summarise all nine.

1. Neobank:

A “neobank” is a fairly trendy word for a bank that operates solely in the digital realm, without physical branches. Although this doesn’t disprove the existence of Neobanks, it does mean that you won’t be able to simply drive to one. Moreover, because they don’t have to maintain a physical branch, these financial institutions can keep their costs down. What this means for you is higher interest rates on your money.

I was surprised to learn that there are actually more than 300 online banks operating in the world. One of the most prominent is SoFi, which got its start by refinancing student loans. Chime, another online-only financial institution, is noteworthy since it offers a competitive annual percentage yield (APY) on savings accounts (0.50% at the time of this writing).

There are now many long-standing options for banking online, and Lending Club is only one of them. Formerly known as a P2P lender, Lending Club now provides an online savings account with a rate of 0.60% per year.

2. Inflation-Protected Securities of the Treasury (TIPS):

Treasury Inflation-Protected Securities (TIPS) could be a great location to put your extra cash if you believe inflation will continue to rise. TIPS automatically adjust to reflect changes in the Consumer Price Index, which is a broad index of consumer prices. This adds even another viable banking option to the list.

While some may question whether or not TIPS is genuinely keeping up with inflation, information regarding this and other government-issued bonds is available on TreasuryDirect.gov.

In order to begin purchasing Treasury Inflation Protected Securities (TIPS), you will need a minimum of $100. There is no requirement to pay state or local taxes on your dividends or interest from TIPS, which is a significant perk. Please be aware that federal taxes must be paid on any profits made from investing in TIPS.

3. Mobile and Web-Based Financial Management Tools:

As an additional viable banking option, online investment apps (also known as online brokerage services) such as Robinhood and M1 Finance are worth considering. Most people probably think about meme stocks or crypto investing when they hear about these businesses. The cash management account in these apps, however, offers a respectable rate of return.

For instance, Robinhood’s built-in savings feature is part of the app’s financial management features.

30% APY. Also, Robinhood’s account has no extra charges. More than 75,000 fee-free ATMs across the country allow you to withdraw cash from your account. What’s more, Robinhood’s cash management accounts are covered by the FDIC.

M1 Financial has its own “super app” for managing money, but it costs $125 annually. This account, however, rewards you with 1% cash back every time you use your debit card and a 1% interest rate.

An annual fee of $125 for an online account and debit card may sound steep, but consider that account holders get a rate of return on their funds that is 33 times the rate offered by the typical US savings account. With 1% cash back on debit card transactions, you may quickly offset the cost and still come out ahead.

4. High Yield Bonds:

Generally speaking, bondholders can feel at ease knowing that their investment is very secure. Bonds are still bought, but in quite different ways than they were even a few decades ago.

The baby boomer generation was notable for its practice of buying municipal bonds and other types of bonds straight from the issuer. Yet, many modern investors get their bond exposure through mutual funds or exchange-traded funds.

The American Century High-Income Yield Fund is a mutual fund that invests in high-yield bonds (NPHIX). Despite the higher potential loss, the current yield on this product is 5.12%. So, it’s reasonable to expect your balance to fluctuate as time goes on.

Similarly, the Nuveen High Yield Municipal Bond Fund (NHMRX) offers a yield of 3.09%. To reiterate, this is a high-yield bond, thus there is a greater chance that your balance will change over time.

The SPDR High-Yield Bond ETF (JNK) has a yield of 4.75 percent, and it is only one of many exchange-traded funds (ETFs) that invest in high-yield bonds. It’s ironic that this bond bears the JNK symbol given that it is a garbage bond.

There are plenty of options for purchasing high-yield bonds. All the standard online brokerage firms and applications allow you to invest in high-yield bonds, including M1 Finance, Robinhood, and E*TRADE. All of these possibilities represent viable alternate banking systems for use with surplus funds.

5. High Dividend-Paying Stocks:

High-yield stocks are an excellent substitute for conventional banking because they are designed to distribute a generous dividend. Even though there is more risk involved, the dividends from some of these companies can yield a larger return than what you can get from a bank.

To be clear, I am referring mostly to stocks included in the Dividend Aristocrats. Here is a look at 65 dividend firms included in the S&P 500 that have increased their dividend payment each year for the past quarter century. In general, these are larger, more reputable enterprises with a proven track record of profitability.

Among these companies is AT&T, which has a dividend yield of 3.79%. The current dividend yield for McDonald’s is 2.11%, making it another option. Included as well is Verizon, which offers a dividend yield of 4.79 percent.

6. Combined Investments:

The sixth and last banking choice I’ll discuss is a diversified portfolio consisting of elements from the five preceding types of banking strategies. You could, for instance, put some of your extra cash into high-yield stocks and some into high-yield bonds.

If you already have an account with a service like Robinhood or M1 Finance, using this technique will be a breeze. Opening a cash management account and becoming familiar with these programs will make diversifying your investments a breeze.

Be aware, nevertheless, that certain programmes are better suited than others for assembling a diversified portfolio. For instance, with Robinhood, you’d have to pick your own funds and rebalance them as time went on. M1 Finance, on the other hand, has investment “pies” that have been carefully tailored to different sorts of investors according on their tolerance for risk.

Betterment is another web-based service that helps investors create a portfolio that fits their needs and objectives. On the other hand, this firm is a “robo-advisor,” which means it employs automated processes to help you make investing decisions. Betterment is preferable to other investing apps since it provides users with access to professional investment management services.

You can increase your rate of return on savings without “betting the farm” by taking a diversified approach across multiple platforms.

7. Trusts for Investing in Real Estate (REITs):

Real estate investment trusts (REITs) are a type of stock, although I’m not actually talking about those. My focus here is on real estate choices, which provide a means of investing in the market while also promising a healthy return.

A stock exchange-traded fund (ETF) is the first investment vehicle I’ll cover. Over the past decade, the iShares US Real Estate ETF (IYR) has returned 11.25 percent and generated a 2.06 percent dividend yield. Since you won’t ever have to set foot in the properties you’ve invested in, that’s not awful at all.

It is the main advantage of buying real estate exchange-traded funds. You can gain experience in the real estate industry without taking on the burden of property management. Your investment returns could be significantly increased if you take this risk.

Fundrise is another great choice that I regularly employ. You can avoid the fees often associated with exchange-traded funds by investing in a REIT directly through this online platform.

My experience with Fundrise spans multiple years, as I opened an account in 2018 and began making investments that same year. Incredibly, as you can see in the screenshot below, my current lifetime return is 13.2%.

One of Fundrise’s many appealing features is that it doesn’t necessitate a large initial investment. At Fundrise, you can invest as little as $10, and even the minimum commitment is only $1,000.

Hence, you can get your feet wet in the real estate market with far less capital than is required to buy actual buildings. And whether you’re looking to invest in a shopping center, an apartment complex, or a commercial rental property, Fundrise makes it simple to keep track of all your holdings in each.

8. A Message With a Short Term

No. 8 on the list of banking options requires you to be a high-net-worth individual to use it. To qualify, you’ll need a combined annual income of $200,000 or a combined income of $300,000, as well as a net worth of more than $1 million (not including the value of your primary house).

If this sounds like something you’d be interested in, here’s how Short-Term Notes function. If not, then please proceed to Option #9 in the list of available banking options.

Companies like YieldStreet provide access to short-term notes. The short-term note yields offered by this online site are 40 times the average money market yield or 4% per year.

There are no costs associated with these notes, and they can be cashed out in as little as six months. Interest on this company’s short-term notes is sent automatically each month into your YieldStreet account.

Although the YieldStreet Short Term Note Series XLIV is aimed at high-net-worth investors, a mere $500 is required to participate. That means you can test the waters with a small investment and scale up if necessary.

9-Online Cryptocurrency Banks:

At long last, let’s speak about ways to profit from cryptocurrency holdings other than selling. You can earn a return on your cryptocurrency holdings in a crypto savings account, just like you would with a traditional savings account. The first time I heard about this from another investor several years ago, I thought it sounded too wonderful to be true.

I have an account with Celsius, a crypto platform, in addition to the others I use, thanks to a friend’s tip.

Currently, I have somewhat less than $200,000 in a Celsius account that yields 8.5%. In a unique twist, Celsius disburses interest once every week rather than once every month as most other markets do.

As you can see in the image below, my weekly interest from Celsius now exceeds $224. The interest accrues at a rate of more than $900 per month, or more than $11,000 per year.

That number makes me want to throw up because it’s so much higher than my salary at U.S. Bank.

Always keep in mind that there is a high degree of uncertainty associated with any cryptocurrency investment or cryptocurrency profits. There is no Federal Deposit Insurance Corporation (FDIC) protection, and no assurance that you won’t lose everything.

In Concluding:

The options presented here should get you thinking about how to best manage your finances and generate profit. After all, it is only human to seek a better rate of return on the money you have set aside for a rainy day or any other long-term goal.

Having said that, it’s important to keep in mind that larger returns inevitably entail greater danger. There is a trade-off between the higher interest rates offered by non-bank financial institutions and the potential safety risks associated with your money.