Earning Easy Money on Your Extra Funds

Everyone knows that one of the most important principles of personal finance is to build up your savings in order to have extra money on hand. However, they don’t always tell you what to do with those funds once you have them. For that reason, all too many of us let our checking accounts get fat when our funds could be better used elsewhere.


Don’t let your money just sit there—put it to good use! Here are a few ways you can make some extra money from your savings:

Online bank accounts, CDs, and money markets

If you’re like many people, odds are you simply keep your extra money in a traditional savings account. That’s a good start, but unfortunately the interest rates that most big banks offer are minuscule at best. In fact, several major intuitions pay as little as .01%. Luckily there are other options, and one of the best places to start looking is the Internet.

Since online banks don’t have to deal with many of the costs associated with brick and mortar branches, they typically offer much higher interest rates to their customers. For example, online institutions such as Discover Bank, Ally, Synchrony and others offer savings accounts with interest rates as high as 1%. Additionally, many online banks provide other options like certificates of deposit (CDs) and money markets that can also earn you a return on your money. Both products are somewhat similar to savings accounts but have their own pros and cons.

Starting with CDs, the biggest difference between this option and a regular savings account is how accessible your money is. CDs allow you to deposit money for a set period of time—ranging from one month to 10 years—in order to earn what is typically a higher interest rate. In most cases, the longer the terms, the better the rate. Of course, if you absolutely need the money you’ve deposited, there is a way to get it out. However, you will typically be assessed a penalty for doing so, amounting to a few months worth of the interest you’d collected.

As for money market accounts, they could almost be compared to a savings/checking hybrid. That’s because some banks will allow you to write checks against your money market balance, or perhaps even use a debit card for the account. The downside is that these types of accounts typically require a much higher initial deposit, as well as daily balance requirements you’ll need to maintain in order to avoid penalty. With that in mind, this is really only an option for those with a large chunk of extra cash to stash.

While it might seem odd to put your money into a bank you can’t actually visit, technology is making it easier to live without physical banks. Many of the aforementioned online banks offer mobile apps and other conveniences—such as partnerships with ATM providers—to make accessing your money easier. However, it’s important to note that there are usually limitations on online accounts, including the number of transactions you can make per month. Lastly, be sure to check that the online bank you go with is FDIC-insured just in case.

Dabbling in investing with Fin​Tech

In terms of passively earning on your money, the 1%+ you can get from online savings accounts, CDs, and money markets is pretty great. On the other hand, if you want a potentially bigger reward and are willing to take a few risks, there are a number of ways to get started in the world of investing. Although that might sound intimidating to many, today there are several tools and platforms from financial technology (mashed together to form the incredibly cool sounding term “FinTech”) companies that not only make investing easier, but also offer new ways to make money.

One prime example of this trend is the mobile app Acorns. Basically, this application links to your debit and credit cards to “round up” your purchases to the nearest dollar and invest the change. What’s also cool is that you can adjust your settings to choose whether you want to be more conservative or aggressive with your investments.

Another growing Fin​Tech invention is peer to peer (P2P) lending. P2P is actually strikingly similar to crowdfunding platforms like Kick​starter and Indiegogo that you’re likely already familiar with, except that sites like Prosper and Lending Club help borrowers in need of loans. Simply put, approved borrowers can have their loans funded by investors, who then earn interest on the loan.
As investing in peer to peer lending has evolved new tools that help to manage the process, such as Lending Robot, which help to automate your loan investments. The peer to peer platforms themselves are also rolling out tools to manage investments. As these tools gain adoption, investing in peer to peer loans will likely become a more mainstream practice to help diversify investment portfolios. That said, you can still get started today with investing as little as $25 in individual loans.

Interestingly, companies, such as Able Lending, are now combining P2P and crowdfunding so that friends and family can lend money more formally for startup businesses. For that reason and others, it’s worth keeping an eye on the FinTech sector for possible investment opportunities in the future.
When it comes to building your savings, there are many places to put your money. Whether your prefer passively earning from online savings accounts or taking on some risk by trying your hand at investing, it’s often worth exploring your options and ensuring that your money is put to work earning you even more.