The best rate depends on what type of account you open and which bank you check
There is no single "best" savings account because interest rates change daily and vary by bank. A high-yield savings account at an online bank typically pays between 4% and 5% APY right now, while a traditional brick-and-mortar bank might pay 0.01% on the same deposit. The difference matters: on $10,000, that gap means $400 to $500 per year versus $1. The rate you actually get depends on three things: the bank you choose, the account type you open, and when you check.
Interest rates move with the Federal Reserve's benchmark rate. When the Fed raises rates, banks raise what they pay depositors. When the Fed cuts rates, banks cut what they pay. This happens with a lag—sometimes weeks, sometimes months. A rate that is highest today might not be highest next month. You are not locked into a rate; most savings accounts let you move money to a different bank whenever you want.
Key Takeaways
- Online banks and credit unions typically offer rates 40 to 50 times higher than traditional banks because they have lower overhead costs.
- High-yield savings accounts, money market accounts, and certificates of deposit (CDs) each pay different rates and have different rules about when you can withdraw.
- The highest rates change weekly, so checking a rate-comparison site before you open an account takes five minutes and can save you hundreds of dollars per year.
- Some banks pay higher rates only on balances above a certain amount, so read the fine print about minimum deposits and balance tiers.
How online banks pay more than traditional banks
Online banks pay higher rates because they do not operate physical branches. They have no tellers, no rent on a building in your town, no staff in a lobby. That cost savings gets passed to depositors as higher interest. A bank like Marcus, Ally, or American Express Personal Savings typically pays 4% to 5% APY on a basic savings account. Chase or Bank of America, which operate thousands of branches, typically pay 0.01% on the same account.
Credit unions also tend to pay more than large national banks, though usually less than online-only banks. A credit union is a member-owned cooperative, not a for-profit corporation, so it returns earnings to members rather than shareholders. You have to be a member to open an account, which usually means living or working in a certain area or belonging to a certain employer or organization. Rates vary widely by credit union, so you have to check your local options.
The tradeoff is convenience. An online bank has no branch where you can deposit cash or speak to someone in person. Most online banks let you deposit checks by phone camera, and you can withdraw money through ATM networks or transfers to another bank. If you need to hand someone cash, you will need a second account at a bank with branches, or you will need to use an ATM that charges a fee.
The difference between savings accounts, money market accounts, and CDs
High-yield savings accounts let you withdraw money anytime without penalty. You can add to the account or take money out whenever you want. The rate is variable, meaning the bank can change it at any time. Right now, the best rates are around 4.5% to 5% APY. These accounts are best if you want your money to stay accessible.
Money market accounts are a hybrid between a savings account and a checking account. They usually pay a slightly higher rate than a savings account—sometimes 4.75% to 5.25% APY—but they come with a debit card and check-writing privileges. The catch: some banks limit how many withdrawals you can make per month, usually six. If you exceed the limit, you pay a fee. Money market accounts are best if you want a higher rate but also need regular access to your money.
Certificates of deposit (CDs) lock your money away for a set time—three months, six months, one year, five years—in exchange for a higher rate. A one-year CD might pay 4.5% to 5.5% APY. If you withdraw before the term ends, you pay a penalty, usually a few months of interest. CDs are best if you know you will not need the money for a specific period and want to lock in a rate before it drops.
The rate you see advertised is the APY—annual percentage yield. This is the actual return you will earn in a year, including compounding. It is different from the interest rate itself, which is lower. You do not need to do the math; the APY is what matters.
Where to check current rates
Bankrate, DepositAccounts, and DepositAccounts.com all publish updated rates from hundreds of banks and credit unions. These sites update daily or weekly. You can filter by account type (savings, money market, CD), by term length (for CDs), and by minimum deposit. The rates shown are what new customers get; existing customers sometimes earn less.
You can also go directly to a bank's website and check the rate there. Online banks usually display the rate prominently on the homepage. Traditional banks often bury it in the fine print or require you to click through several pages. If you cannot find the rate easily, that is often a sign it is very low.
When you compare, look at the minimum deposit required. Some banks pay 5% APY on balances up to $25,000 and a lower rate on anything above that. Others pay the same rate on all balances. Some have no minimum at all. A few banks pay higher rates only if you set up automatic monthly deposits or meet other conditions. Read the terms before you open the account.
Why the highest rate is not always the best choice
A bank offering 5.5% APY instead of 4.5% sounds like an obvious choice, but not always. If the bank is new or very small, it might be paying a high rate to attract deposits. Once it has enough money, it might cut the rate sharply. If the bank is not FDIC-insured, your deposits above $250,000 are not protected if the bank fails. Check that any bank you use is FDIC-insured or, for credit unions, NCUA-insured.
Also consider how straightforward it is to move money in and out. Some online banks make transfers slow or charge fees. Some do not let you link to external accounts. If you need to move money quickly or frequently, a bank with fast transfers and no fees is worth a slightly lower rate.
Finally, think about your total banking needs. If you need a checking account, a debit card, and bill pay, opening accounts at two banks—one for checking, one for savings—is annoying. Some online banks offer both checking and savings, so you can keep everything in one place even if the checking account pays almost nothing.
How rate changes affect what you earn
When the Federal Reserve raises its benchmark rate, banks usually raise savings rates within a few weeks. When the Fed cuts rates, banks cut savings rates much faster—sometimes within days. This asymmetry means you should move your money when rates are high, because they might not stay that way.
If you have $50,000 in a savings account earning 4.5% APY, you earn about $2,250 per year. If the rate drops to 3.5% APY, you earn $1,750—a loss of $500 per year. You cannot predict when the Fed will move, but you can watch the financial news. When economists say a rate cut is coming, that is a good time to lock in a CD before rates drop.
Frequently Asked Questions
Is my money safe in an online bank?
Yes, as long as the bank is FDIC-insured. Your deposits up to $250,000 are protected even if the bank fails. Most online banks are FDIC-insured; check the bank's website or call to confirm. Credit unions are protected by NCUA insurance, which works the same way.
Can I move my money to a different bank if the rate drops?
Yes. Savings accounts have no early withdrawal penalty. You can move your money to a different bank anytime. The transfer usually takes one to three business days. There is no fee to move money between banks, though some banks charge a fee to close the account.
What is the difference between APY and interest rate?
The interest rate is the percentage the bank pays. APY is the annual percentage yield—the actual return you earn in a year after the bank compounds the interest. APY is always higher than the interest rate. When comparing accounts, always use APY, not the interest rate.
Do I need a minimum balance to earn the advertised rate?
It depends on the bank. Some banks require a minimum deposit to open the account but pay the same rate on all balances. Others pay the advertised rate only if you maintain a certain balance. Read the account terms before you open it. If the minimum is higher than you can deposit, the rate does not explore to you.
Should I put all my money in a CD to lock in the rate?
Only if you will not need the money before the CD matures. If you withdraw early, you pay a penalty—usually a few months of interest. If rates rise while your money is locked in a CD, you cannot move it without paying the penalty. A mix of a savings account (for money you might need) and a CD (for money you will not touch) is often the best approach.