Building a safety net is crucial for your financial security, but better tools may exist than a traditional savings account. The average annual percentage yield, or APY, for savings accounts was just 0.37% as of March 2023, so you won’t experience much growth.

Luckily, there are other options for your savings that can help your money work harder for you, such as money market accounts, I bonds, and certificates of deposit, or CDs. The best option depends on your goals and how quickly you may need your cash.

For short-term goals or emergency savings, choose an account that offers access when you need it. But for longer-term goals, CDs or I bonds can produce much higher returns.

Top savings account alternatives

Savings accounts are deposit accounts. They’re a place to store your money safely, and you can also earn a little interest on the account. But with savings accounts, the priority is safety and protecting your money.

With traditional bank or credit union accounts, the APY on savings accounts is usually low. However, you can find dramatically higher rates from online banks and financial institutions. With fewer overhead costs than brick-and-mortar banks, digital institutions can afford to provide higher APYs.

With digital banking becoming more popular, some banks compete for business by raising the APY — driven by the potential profit in investing those account deposits or lending them out as mortgages, auto loans, and personal loans. That's why you might see your local bank advertising APYs that start with a zero but an online competitor offering 4% or better.

Is shopping around to find those rates worth it? Your call: A $10,000 deposit with an APY of 0.37% earns you $37 a year. At 4%, it earns you $400.

You don't have to give up safety. The Federal Deposit Insurance Corp., known as the FDIC, insures savings accounts, protecting up to $250,000 of your deposits. In the case of credit unions, your savings are insured by the National Credit Union Administration, or NCUA. But they also protect many other kinds of deposit accounts.

If you’re looking for ways to earn higher returns, consider these alternatives:

Money market accounts

Pros

• Higher APY than a traditional savings account

• Insured by the FDIC or NCUA

• Can easily access cash

Cons

• Limits on the number of withdrawals per month

• Low APY compared to other options

A money market account is another type of account that you can open with banks and credit unions. Also known as money market deposit accounts or money market savings accounts, they provide slightly higher returns than traditional savings accounts.

Similar to savings accounts, money market account deposits are insured by the FDIC or NCUA. And you can withdraw by check, debit card, or electronic transfer.

Money market accounts are options for those that want to earn a higher APY but still want to access their money in an emergency easily. Although there are some high-yield money market accounts available, you can likely find higher APYs with account options.

High-yield savings accounts (HYSAs)

Pros

• Much higher APY than traditional savings accounts

• Insured by the FDIC or NCUA

• No penalties for withdrawals

Cons

• Higher account minimums

• Usually no in-person assistance

• APY can fluctuate

A high-yield savings account, or HYSA, is a savings account that provides a much higher-than-average APY. Primarily offered by online banks and credit unions, these accounts can offer APYs as high as 4.75%.

HYSAs usually have higher minimum deposit and balance requirements than traditional savings accounts. And the APY on savings accounts is not fixed; the financial institution can adjust the rate over time, so it can decrease.

An HYSA is best for someone who has financial goals to achieve within the next one to three years. They’re FDIC- or NCUA-insured and provide higher returns than traditional savings accounts but still allow quick access to your cash.

Certificates of deposit (CDs)

Pros

• Much higher APY than traditional savings accounts

• Insured by the FDIC or NCUA

• Low-risk option

Cons

• Penalties for early withdrawals

• Inflation may outpace APY

• May have high minimum deposit requirements

How do certificates of deposit work? A CD is a deposit account you can open with many banks, credit unions, and other financial institutions. CDs generally offer higher APYs than traditional savings accounts and money market accounts — sometimes, the APY on CDs can top 5%.

With such a high APY, putting your money into a CD can seem like a no-brainer, but CDs have some drawbacks to keep in mind.

CDs aren’t as liquid as other options, meaning you can’t easily withdraw money from the account. When you put money into a CD, you have to commit to leaving it in the account for a specific term, such as 24 or 36 months. If you take out money before the CD’s maturity date, you’ll incur an early withdrawal penalty or forfeit some of the interest you earned.

Because CDs are less liquid, they aren't a good place for your emergency fund or other goals that may require quick access to cash. Instead, a CD can be a useful option for goals with longer time horizons, such as saving for a home or a new car.

Are certificates of deposit worth it? If you don’t need to tap into the account early, a CD allows you to earn a higher yield than you would with a savings account; just be aware of the limits associated with them before depositing your money.

Series I savings bonds

Pros

• Low minimum

• Earnings exempt from state and local income taxes

• Interest rate increases with inflation

Cons

• Not liquid

• Cashing out a bond in less than five years will cost you interest

• Limits on how much you can buy

Series I savings bonds, more commonly known as I bonds, are backed by the US Department of the Treasury. The bonds earn interest monthly, and the interest is compounded — or added to the bond’s principal value — every six months.

I bonds protect against inflation. You earn both a fixed rate of interest and a rate tied to inflation. For example, bonds issued between Nov. 1, 2022, and April 30, 2023, have a rate of 6.89%.

You can purchase I bonds with as little as $25, and they’re exempt from state and local income taxes.

While I bonds have the highest return of all of the options listed, they have some limitations. You can redeem your bond only after 12 months have passed. And if you cash in a bond after holding it for less than five years, you will lose three months of interest.

There are also caps on how much you can buy in I bonds. The maximum is $10,000 in electronic I bonds, and up to $5,000 in paper I bonds purchased with your tax refund.

Because they are not liquid, I bonds aren’t a good option for an emergency fund or savings for short-term goals. Instead, I bonds are another way to supplement your savings and investments for longer-term goals.