Scrimping and saving every penny you have will only take you so far. Living a frugal life won’t actually make your money work for you, and it’s relatively easy to fall into the frugal trap. Rather than being tightfisted with money that seems to diminish each time you try to use it, adjust your saving habits and make your money work for you. As you grow, and especially as your career options expand, you will undoubtedly be able to pocket more money than you could when you were younger. With a national savings rate average of well below one percent, it’s not just a good idea to search for a higher yield savings account, it’s a smart investment tip that will help your retire with more money.

Estimates show that a couple putting away between $400 and $600 per  month (roughly 10% of a $60,000 yearly household income income), that couple will have almost $250,000 to help with retirement expenses. Apply interest to that number and retirement starts to look a lot less scary. The trick is to shop around, and to save for milestones. The more money you have on hand, the more options you have to grow it, so a good frugal lifestyle is a fortunate step in the proper direction.

Online Savings Accounts

The ability to bank in-person might not be worth the cost of it. As big banks look for methods to cut down on operating costs to maximize profits, customers are feeling the pinch. Interest for savings accounts is at a national average somewhere around .10 and .13-percent. The solution is to move your money to an online high interest savings account, not to be confused with a regular online savings account. Banks like Capital One and Sallie Mae offered interest rates for savings accounts between .75 and .86-percent, an increase of 8 fold.

Checking Accounts with Rewards

Recent news revealed that some major banks are profiting from the practice of overdraft fees. A trick that orders transactions based on the size of the purchase has been leaving some customers out of cash. While reward checking accounts may not put a stop to this practice entirely, it is possible to reap some benefits for storing your money. Many accounts will offer free checking if you maintain direct deposit, make purchases with your debit card, or choose to receive electronic statements instead of paper ones.

Some of the benefits you can look forward to include a reimbursement on ATM fees and a higher interest rate.

Money Market Accounts

Money Market accounts are not for the average consumer, so don’t close your checking account just yet. While the interest works in a similar concept, money market accounts pay compounded interest on money you keep with them. When you invest in a money market account, you might have restrictions like minimum account balance or limited transactions. Money market deposit accounts are also FDIC insured for up to $250,000, which is a sizableportion of the average income earner’s savings.

Certificates of Deposit

Like money market accounts, CD’s are good for short term investments. With a certificate of deposit account, you agree to invest a fixed amount for a certain time period. Money that you invest into your CD accrues interest the same way that a savings account will, but early withdrawel often comes with a fee that customers must pay before collecting money. This option is a lot less liquid than the other methods of saving, but for someone with steady income, a CD is a relatively low risk option that is also FDIC insured.

Here are few questions to ask before investing in a CD:

  • Is the bank FDIC insured? CD’s are FDIC insured, but the bank issuing them may not be. Be sure to also review the fine print so that you can be sure the bank identifies that it insures a “deposit.”
  • Note the date that your money will mature. If your CD automatically renews, then your account will renew at the date of your funds maturity. If rates have changed since then, you might be stuck with a lower rate.
  • Consider staggering out CD’s to maximize interest earned. With $60,000, you can create three CD’s that expire in one, two and three years respectively, thus increasing the interest you earn on that money while keeping your funds relatively liquid.

You might also find that your CD comes with benefits, like a death benefit that will pay out the CD to the beneficiaries designated by the original owner. Always research CD rates to determine a national average for yourself. If you come across rates that are well beyond this average, thoroughly research the offer so that you are not taken advantage of.

Credit Unions

Credit unions have become increasingly popular alternatives to big banks. These not-for-profit institutions typically offer better interest rates on accounts and loans than retail banks. Customers may also find loan terms more flexible as the National Credit Union of America encourages its members to work with home owners toward amicable results.

The issue with credit unions is usually membership. Often, you can find credit unions based on where you live, work, or worship. Credit union membership is restrictive, so those that do not meet the parameters simply cannot join. The federal government has a website set up for users to find a credit union near their location.

Final Notes

Keep track of your expenses and consider investing in a tax professional. You could save thousands in annual taxes with better bookkeeping, and your expenses can translate to refunds if you exercise some forethought with your purchases. Take advantage of variable terms for CD’s and look for ways to minimize your debt. Zero percent balance transfer cards can help you in the short term by providing a window of breathing room to pay down debt while you funnel more money into a high interest savings account.

Keep your credit score as close to excellent as possible. Having an excellent credit score will help lower rates for your home (either as a first time buyer, or through refinancing) and could lead to better interest rate credit cards. Finally, don’t stop shopping for better rates. The Federal Reserve has promised low interest rates until unemployment improves. This is an excellent time for you to shop for better savings rates.