What to Avoid If You Want Your Savings to Actually Grow
Scenario
You’re parking your money in a savings account for safety—but not all savings accounts serve your financial goals. Some accounts barely pay interest, especially after inflation and taxes take a bite. For U.S. residents, knowing which savings accounts to avoid is essential if you want your money to work for you.
Below are the worst offenders. We’ll explain how each account works, what makes it weak, who it harms most, and what you should use instead—including insurance and annuity options that grow wealth securely and efficiently.
Traditional Savings Accounts at Big Banks
Typical APY: 0.01% – 0.05%
These are the default savings accounts offered by large institutions like Bank of America, Wells Fargo, and Chase. They’re convenient—but costly in terms of growth.
- Pros
- FDIC-insured
- Easy access and ATM availability
- Automatic transfers from checking
- Cons
- Near-zero interest
- Loses to inflation
- Fees may apply if balance is low
Who Needs It: People who prioritize convenience over growth (e.g., those with checking and savings at the same bank).
Who Doesn’t: Anyone wanting real interest earnings or inflation protection.
Also Consider: Money market accounts or high-yield online savings accounts.
Savings Accounts with Monthly Fees
Typical APY: Low or zero, with a $5–$10 monthly fee
Many brick-and-mortar banks charge maintenance fees unless you meet balance or deposit requirements. These fees wipe out your interest.
- Pros
- May include perks like overdraft protection
- Cons
- Fees often exceed earned interest
- Complex terms
Who Needs It: Only those who benefit from bundled services or waive fees consistently.
Who Doesn’t: Savers with low balances or limited cash flow.
Also Consider: No-fee savings accounts from online banks or credit unions.
Regular Credit Union Savings (“Share Accounts”)
Typical APY: 0.10% – 0.25%
While credit unions offer low fees, their base savings rates aren’t competitive unless you move to special accounts.
- Pros
- NCUA insured
- Community-focused institutions
- Cons
- Low returns
- Often requires branch visits or paperwork
Who Needs It: Members loyal to their credit union and not seeking aggressive growth.
Who Doesn’t: Tech-savvy savers who prefer higher, automated returns.
Also Consider: Reward checking or certificate accounts at credit unions.
Student or Minor Savings Accounts
Typical APY: 0.01% – 0.05%
These accounts are designed to teach kids about money but usually offer token rates.
- Pros
- Educational
- Joint ownership with parent
- Cons
- Low earning potential
- Transition to adult account can bring fees
Who Needs It: Parents teaching financial basics.
Who Doesn’t: Teens or students ready to manage real investments or high-yield options.
Also Consider: Custodial Roth IRAs or cash-value life insurance for long-term growth.
Passbook Savings Accounts
Typical APY: Often < 0.05%, requires in-person transactions
These outdated accounts offer physical tracking and little else.
- Pros
- Simple, tangible record-keeping
- Cons
- Poor interest
- Not digital-friendly
Who Needs It: Older individuals comfortable with manual recordkeeping.
Who Doesn’t: Anyone using mobile banking or expecting decent returns.
Also Consider: Digital high-yield accounts or fixed annuities for better return and simplicity.
Low-Tier Online Savings Accounts
Typical APY: 0.10% – 0.40%
Not all online banks are created equal. Some still offer below-average returns and outdated interfaces.
- Pros
- FDIC-insured
- Often no fees
- Cons
- Lags behind better online competitors
- May require linked accounts or minimums
Who Needs It: Those already banking with the institution for other services.
Who Doesn’t: Savers who want top-tier APY or best-in-class service.
Also Consider: Top-rated HYSAs, CDs, or annuities with guaranteed interest.
Linked Bank/Investment Platform Savings (Robo-advisor Cash Accounts)
Typical APY: Sometimes promotional, then drops < 1%
Platforms like Wealthfront or Betterment offer cash accounts, but interest rates fluctuate and can drop quickly after promotions.
- Pros
- Seamless integration with investments
- FDIC insurance via partner banks
- Cons
- Rates may fall
- Limited customer service
Who Needs It: Those already using robo-advisors.
Who Doesn’t: Savers wanting consistent interest or inflation protection.
Also Consider: Fixed index annuities or MYGAs for long-term, guaranteed growth.
Better Alternatives Using Insurance-Based Financial Tools
1. Multi-Year Guaranteed Annuities (MYGAs)
A MYGA is a fixed annuity with a guaranteed interest rate for a fixed term (like a CD), but it offers better rates and tax advantages.
How It Works:
- You invest a lump sum with an insurance company.
- You earn a guaranteed rate (often 4–5.5%) for a fixed number of years.
- Withdrawals over 10% annually may incur penalties during the surrender period.
Insured by:
- The insurance company
- Your state’s guaranty association (typically $250,000 per owner per company)
Funding Options:
- Non-qualified funds
- IRA rollovers
- Roth conversions
Pros:
- Higher yields than any bank savings account
- Tax-deferred growth (non-qualified)
- Allows up to 10% annual withdrawals without penalty
Cons:
- Less liquidity than a savings account
- Early withdrawal penalties on excess amounts
Who Needs This:
Retirees, conservative savers, and anyone who wants to preserve and grow money without stock market exposure.
Who Doesn’t:
People who need full liquidity or those saving for short-term purchases.
Compare MYGA Rates
2. Fixed Indexed Annuities (FIAs) With Guaranteed Lifetime Withdrawal Benefits (GLWB)
How It Works:
- Tracks the performance of an index (like the S&P 500), but your principal is never at risk.
- Optional GLWB provides lifetime income starting at a date you choose.
- Growth compounds inside the contract until you start withdrawing.
Unique Features:
- Annual crediting based on index performance with a cap or participation rate
- Optional GLWB riders guarantee income for life, even if your account value drops to $0
Insured by:
- The issuing insurance company
- State guaranty association
Pros:
- Upside potential with no market loss
- Income can last as long as you live
- No annuitization required (income is revocable)
Cons:
- Complexity in contract structure
- Riders come with fees (typically 0.95% to 1.25%)
Who Needs This:
People preparing for retirement or anyone looking for secure income without market volatility.
Who Doesn’t:
Short-term savers or those looking for highly liquid emergency funds.
Compare Annuity Lifetime Income
3. Cash Value Life Insurance (Whole Life or Indexed Universal Life – IUL)
How It Works:
A portion of your premium builds cash value that earns interest or index-linked returns. This cash can be accessed tax-free through loans.
Insured by:
- The insurance company
- State guaranty association (subject to limits)
Pros:
- Tax-free growth and access via loans
- Income-tax-free death benefit
- Helps with estate planning and legacy creation
Cons:
- Requires medical underwriting
- Not designed for short-term saving
Who Needs This:
High earners, small business owners, and estate planners looking for tax-advantaged savings vehicles.
Who Doesn’t:
Those needing immediate access to funds or with limited premium flexibility.
Why These Tools Outperform a Traditional Bank Savings Account
| Product Type | Insured By | Typical Return | Tax Treatment | Liquidity | Ideal Use |
|---|---|---|---|---|---|
| Bank Savings | FDIC | 0.01%–0.05% | Taxable | Full, instant | Emergency fund |
| Credit Union Savings | NCUA | 0.10%–0.25% | Taxable | Full, moderate | Better yields, still liquid |
| MYGA | Insurance + State Guaranty | 4%–5.5% | Tax-deferred (non-qualified) | 10% annual access | Safe growth over time |
| FIA with GLWB | Insurance + State Guaranty | 4%–7% credited | Tax-deferred | Flexible; income when needed | Lifetime income, no market risk |
| Cash Value Life Insurance | Insurance + State Guaranty | 3%–6% average | Tax-deferred + tax-free loans | Borrowing access | Tax-free retirement income, legacy |
Final Thoughts
If you’re using a savings account that pays less than 1%, your money is losing value. While it’s important to keep cash for emergencies, your long-term savings should work harder. That’s where annuities and certain insurance options outperform traditional accounts. The discrepancy becomes even more apparent when factoring in taxes, inflation, and guaranteed lifetime income.
Speak to an insurance or annuity broker to compare savings growth alternatives
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