Covid rewired Americans to save more — 3 tips for making the most of your rainy day fund

"Good savings accounts help you grow your money safely."


Americans have been saving more money during the pandemic, but they have less to show for that effort as the rate of return on savings accounts hits a record low.

For most of the 1990s and 2000s, the U.S. savings rate — that is, the percentage of income that Americans sock away for a rainy day — was in the single digits. But in April last year, at the height of the pandemic's first wave, the personal savings rate skyrocketed to a record high 33%. By November, the personal savings rate fell to just shy of 13%, although that figure is still almost double the pre-pandemic average.

At the same time, increased bank deposits, in conjunction with low interest rates, have pushed the average rate of return on a savings account to 0.05%. That's the lowest it's been since the government began publishing those figures in 2009. And rates are likely to remain low for the foreseeable future.

That poses a problem for people who want to build up an emergency fund or otherwise shore up their finances. Here are three tips to ensure you're making the most of your savings.

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'Don't be afraid to shop around'

If you'd like to see a bigger return on your savings, it might be time to break up with your current bank. A little internet research will tell you how the return rate on your current savings account stacks up against the competition.

"Don't be afraid to shop around," says Brent Weiss, a certified financial planner with Facet Wealth in St. Petersburg, Florida. Online-only banks in particular tend to have the most competitive rates. Some of the highest-yield accounts currently offer 0.87%, according to, versus the national average of 0.15%.

Those differences add up: Over the course of a year, a $1,000 savings balance would accrue about $9 in interest at banks on the higher end but less than $2 on the lower end.

Don't forget to read the fine print, either. "Before you commit to opening a new account, make sure you check for teaser rates," Weiss says. "The bank may offer a higher rate for a short period of time to get you to move your cash, and then lower the rate after 6 or 12 months."

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'Don't just look at the interest rate'

It is easy to focus on the rate at which your money will grow in any saving account, but don't stop there, says Jim Shagawat, a certified financial planner with AdvicePeriod in Northern New Jersey. Look at the bank's fees and penalties, its ongoing balance requirements, and the ease with which you'll have access to your money, he says.

For example, with interest rates this low, one ATM fee of $4.72 could easily wipe out several months' worth of interest.

"Good savings accounts help you grow your money safely," Shagawat explains. "Don't just look at the interest rate."

Don't 'misuse' a savings account when there are other options

Traditional savings accounts are great when you need easy access to cash, but there are other options you might consider, including a certificate of deposit, which can allow you to lock in a higher interest rate than you could find in a typical savings account in exchange for agreeing not to touch your cash for a predetermined length of time, such as six months or a year. With a no-penalty CD, which usually offers a lower return than a classic CD, you won't incur a fee if a crisis does mean you have to take money out sooner than you'd planned.

There are also lower-risk investments such as a short-term bond fund or money market mutual fund, says D. Scott McLeod, certified financial planner and president of Brown Financial Advisory in Alabama.

Remember that if the money you're setting aside is for a long-term goal, it shouldn't be in a savings account, period, McLeod says. "For most investors, the savings account is, for all practical purposes, misused."

With a longer timeline, investing is crucial to harness the power of compounding and outpace inflation. As self-made millionaire Steve Adcock told Grow, "what savings accounts are not good for is building long-term wealth."

After all, he says, "Nobody ever got rich just by saving money."

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