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A checking account at 7.5%, a CD at 7.19%: APYs like this are tempting, but here’s what to know if you’re chasing those 7% returns

Here’s how experts say you can earn the most with your money.

There may be a catch behind those big numbers.

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As the Federal Reserve raised interest rates over the past year, consumers increasingly saw banks and credit unions promising alluring annual percentage yields — sometimes upwards of 7%. But experts say it is critical to look beyond the promotional fervor before making moves with your hard-earned savings — and often, you’re better off with things like a CD at about 5% (see some of the best CD rates you can get now here) or a savings account at 4% (see some of the best savings account rates you may get now here) with far fewer strings attached. 

But first: Let’s talk about where we are seeing those upwards-of-7% yields. Landmark Credit Union’s Premium Checking has a 7.5% APY. But the big catch here is that it is only good for accounts with balances of $500 or less and you have to be a member of the credit union, where customers must live or work in one of a select number of counties in Wisconsin or Illinois. And Alpena Alcona Area Credit Union offers a 7.19% APY on its 7-month CD. Here, though, depositors have to live, work, own property, attend school or worship in the state of Michigan to get this offer. The deposit max is also $7,000, and there are other catches. We’ve also spotted a few others short-lived 7% offers, but again, they had big humps to jump through.

“A 7% APY [annual percentage yield] is only attainable if it is available to you,” McBride says, referring to some accounts with restricting membership requirements. “If it is only available in another part of the country, that doesn’t help you. There are often limits on how much can be deposited and earn those returns so you may only be able to earn that on a portion of your cash. The top-yielding, nationally available CDs are earning in excess of 5.5%.”

Checking and savings accounts: Where to find high yields with fewer strings attached

Beware, even sub-7% offers can have a lot of strings. These may include deposit minimums, membership requirements and withdrawal restrictions, to name a few. For example, Andrews Federal Credit Union has an attractive 5.75% APY, but that is only account balances from $0.01 to $1,000 and you must be a credit union member. 

That’s why with so many banks and credit unions touting high rates and attractive offers, especially, it’s key to read the fine print and ensure you’re qualified before jumping on board, McBride says. “What a bank is paying on savings accounts or CDs is a direct reflection of their desire to attract deposits,” McBride explains, adding that “banks with a surplus of deposits won’t pay up to bring in more so you’ll want to send your money to a bank where it will be welcomed with open arms and higher yields.” Note that it’s often easier to find higher rates at online banks, and you can see some of the best savings account rates you may get now here.

Certificates of deposit (CDs): Where to find high yields and the right CD for you

“The top-yielding CDs are often found at the online banking division of an existing bank, a true online bank, or a traditional bank or credit union that makes their products available across the country via their online presence,” McBride explains, noting that “the common theme is that you’ll find the best offers online and online is often how you’ll interact with the financial institution offering it.”

But just because they are offering, McBride says that doesn’t always mean it’s ideal to bite. “Don’t tie up cash longer than you can afford to live without it,” McBride says. “Putting money in a CD but needing to cash it in before maturity usually results in an early withdrawal penalty that more than offsets whatever you would’ve earned on a shorter maturity CD or a liquid, online savings account.”

To determine whether a high CD rate tied to a given term length is right for your money, Nicholas Bunio, a certified financial planner at ​​Retirement Wealth Advisors, says potential depositors must analyze their own financial health. “If this money needs to be liquid as you might need it in a few months to a year, short-term CDs would be the best option,” Bunio says. “And while you may not get 7%, putting risk into perspective is important.” Here are some of the best rates right now for CDs (read here for others that also offer high rates of return).

What about stocks and bonds? 

If you’re willing to take on more risk, investing in stocks and bonds can indeed, sometimes at least, deliver larger gains than any CD or checking account. However, while the average stock market gain per year is around 10%, as measured by the S&P 500, the stock market as a whole has only returned between 8% and 12% seven total times between 1926 to 2022, according to a Nerdwallet report. 

So while yes, there is plenty of opportunity here to earn well above 7% on stock investments, Amy Hubble, principal investment advisor at Radix Financial in Oklahoma City, says this rate of return is not always a given. “You’re almost never getting exactly 10%,” Hubble says, adding that “you’re getting a string of inconsistent returns when geometrically averaged will earn you a high annualized return.”

For example, so far in 2023, investors in the S&P 500 have earned a total return on their investment of 16.66% as measured by index tracker SPDR® S&P 500 ETF Trust (SPY) through August 28, according to Morningstar data. Last year, however, the same index tracker recorded a loss of 18.14%, data show. 

Because not every stock earns a high rate of return, and not even the broader stock market can deliver a steady annual gain, McBride says it’s critical to account for the risk involved in stock market investing. “There is a direct relationship between risk and return, and chasing a higher return means taking on some form of risk in hopes that it pays off,” McBride says, adding however that “companies can go bankrupt, making their stocks worthless and leaving bond investors with pennies on the dollar.”

Much like investing in individual stocks, bonds also offer the potential for big annual gains, however in recent years they have more commonly generated annual losses. Take bond industry tracker iShares Core US Aggregate Bond ETF (AGG) for example. So far in 2023, the fund — which tracks government Treasury securities, corporate bonds, mortgage-backed securities (MBS), asset-backed securities (ABS), and munis in an attempt to accurately depict depict bond market performance — has only reported a gain of 0.85% through Aug. 28, according to Morningstar data. And while in 2022 it recorded an annual loss of 13.02% and 1.77% loss in 2021, the fund managed gains of 8.46% and 7.48% in 2019 and 2020, respectively, data show. 

Balanced portfolios

Investing in individual stocks and bonds can indeed deliver some big gains. But it can also result in major losses. That’s why most experts would recommend investors shed some of that risk and seek out more steady gains in a balanced investment portfolio of both stocks and bonds. 

The most common measurement of this strategy, and often implemented in an investment portfolio by finance professionals, is known as the 60/40 portfolio. The strategy here combines a portfolio of 60% stocks and 40% bonds in order to balance one another against losses from company stock growth and the debt they may incur. Over the long-term, this strategy has delivered its investors handsomely with a 10-year gain of 6.1% through 2022, according to a recent Vanguard report

“With more risk comes more potential yield,” says Bunio, adding that “it’s a trade off that may or may not work out in your favor.”

The verdict

Will we ever see a larger movement towards 7%? McBride says it could happen, however it would likely only be possible under potentially dire circumstances. “Interest rates would need to go up a lot more for this to happen,” McBride says, adding that anyone hoping for the day more accounts offer higher savings rates should be “careful what you wish for.”

So aside from simply seeking out the biggest and flashiest returns, Bunio says adds that it’s critical to determine whether a higher rate is really worth the effort. “I have clients that like to chase returns,” Bunio says. “If a bank or investment offers 5%, they put their money there. If they find 7%, then bail out and move there. The issue is, often they’ve gotten burned.” 

That’s because, he adds, that restrictions such as penalties and fees, or loss of principal when investing in stocks, can start to cut into their potential earnings. “No one can time the market or interest rates,” he says, adding that “being steady and consistent is key” and that sometimes “what you’d gain with 7% interest over 5%, you might lose if you get a penalty or can’t touch this money. “Remember, everything has a trade off.”