There are a few ways for consumers to multiply their wealth rather than holding onto it. Here are six possible ways to shake up your own financial strategy
It's no secret that the banking industry has transformed since the global financial crisis of 2008. The revelation of the dangers of too much debt and too little regulation required banks — and the regulators that monitor them — to find new ways to offer products and services to consumers. As they attempted to recover profits, customers often remained disillusioned with traditional banking products and services. That attitude waned ahead of the pandemic but big financial institutions still looked to attract more consumers (and earn more profits).
While trust in banks regrew during the pandemic many experts have argued that the solution is for customers to invest their money themselves and use banks that offer updated services and products that meet their long-term financial needs.
There are quite a few ways for bank customers to multiply their capital — your money, investments, credit, and overall wealth — rather than simply holding onto it. In many cases, these methods are much safer and more reliable than investing in the stock market or other risky ventures.
Here are six possible ways to shake up your own financial strategy.
1. Keep a high-yield savings account
A high-yield savings account is a type of bank account that offers a higher interest rate than a traditional savings account. As of 2022, the average interest rate for a high-yield savings account is around 0.9%, while the average interest rate for a standard savings account is only 0.06%.
This may not seem like a lot, but it can make a big difference. For example, if you have $10,000 in a high-yield savings account, you'll earn $90 in interest after one year. But if you have the same $10,000 in a traditional savings account, you'll only make $6 in interest.
According to Anthony Martin, Founder and CEO at Choice Mutual, "A high-yield savings account is one of the best ways to make your money work for you without risk. You're essentially earning risk-free interest on your money, which can help you grow your capital over time."
There are a few things to keep in mind with high-yield savings accounts:
But overall, a high-yield savings account is a great way to make more money without taking on any risk.
2. Open a certificate of deposit
A certificate of deposit (CD) is another type of bank account that offers a higher interest rate than a traditional savings account. With a CD, you agree to deposit your money for a fixed period, usually between six months and five years. In exchange for this, the bank agrees to pay you a higher interest rate.
Like a high-yield savings account, CDs have a few things to keep in mind. First, the interest rate is usually fixed, which means it won't change for the duration of the CD. Second, you'll typically have to pay the penalty if you withdraw your money before the CD matures.
Many financial institutions offer an interest rate for a one-year CD at around 1.3%, while their offer for a five-year CD is about 2.0%. Community banks and credit unions post their rates in their branches and online, so it is easy to compare rates where you live.
3. Get a rewards credit card
A rewards credit card is a type of credit card that offers points, cash back, or other rewards for every purchase you make. The specific rewards vary from card to card, but they can include travel miles, cash back, or even discounts at certain retailers.
With rewards credit cards, you'll need to be careful about two things. First, ensure you pay your bill in full and on time every month to avoid interest charges. Second, be aware of an annual fee for the rewards, and make sure the rewards are worth the cost.
If you can avoid these pitfalls, a rewards credit card can be a great way to earn extra cash without taking on any risk.
4. Find a bank that offers interest on checking accounts
The average interest rate for an interest-bearing checking account varies by financial institution but is currently around 0.1%. If you have $10,000 in your checking account, you'll earn $10 in interest after one year.
With these types of checking accounts, there are usually a few things to keep in mind. First, you may need to maintain a minimum balance in the account to avoid fees. Second, the interest rate could vary, which means it can go up or down over time. Third, an interest-earning checking account may charge a monthly service fee, especially if you do not meet the requirements – look for an actually free checking account to get the most benefit for your money.
5. Consider a home equity loan
If you already own your own home, it is an investment that can also help you grow your capital. A home equity loan is a type of loan for homeowners that allows you to borrow against the equity in your home. Using the equity to make improvements and increase your home’s value can help enhance your investment in your home and your overall net worth.
Home equity loans typically have lower interest rates than personal loans and credit cards, and they can be a great way to finance a large purchase or consolidate debt.
When you're considering a home equity loan, there are a few things to keep in mind:
Compare interest rates from multiple lenders to get the best deal.
Read the fine print and understand all the fees associated with the loan.
Make sure you can afford the monthly payments before taking out the loan.
Dean Kaplan, CEO at Kaplan Collection Agency, reminds borrowers that "although home equity loans can be a great way to get cash, it's important to remember that your home is used as collateral. If you can't make the payments, you could lose your home."
Overall, a home equity loan is a great way to finance a large purchase, especially one that will enhance the value of your home.
6. Use a small business loan
A small business loan is a type of loan that you can use to finance the start-up or expansion of a small business. Small business loans typically have lower interest rates than personal loans and credit cards, which can be a great way to get the funding you need to better grow your business.
According to Gates Little, President/CEO of altLINE Sobanco, "Multiplying capital instead of just holding it is important because when you're growing a business. You need to reinvest to continue growing. If you're holding on to capital, you will not have the necessary funds to reinvest and expand."
If you're considering getting a small business loan, compare interest rates, terms, and fees from multiple lenders to get the best deal. You can use an online loan calculator to estimate monthly payments and compare offers from various lenders.
Put your money to work
There are many ways to multiply your capital in today's world instead of simply holding onto it. With so many options available, it can be challenging to know where to start.
If you are a banking customer looking to multiply your capital, start by speaking to your community financial institution to find the options that will fit your wealth-build strategy and your long-term financial plan.
Anthony Martin is an entrepreneur and the founder of Choice Mutual Insurance Agency. He created Choice Mutual, the largest online final expense agency in the nation uniquely qualified to assist consumers with finding a burial insurance policy. Since its founding in 2013, he has helped thousands of families prepare for the future.