The highest APY savings accounts are at online banks, not traditional brick-and-mortar banks
As of early 2025, the highest APY savings accounts pay between 4.5% and 5.35%, depending on the bank and account type. These rates come almost entirely from online banks—institutions with no physical branches—because they have lower operating costs and pass those savings to depositors. Traditional banks at shopping centers typically pay 0.01% to 0.05% on regular savings accounts, which is why the difference matters: on $10,000, you earn roughly $450 per year at 4.5% versus $5 per year at 0.05%.
The catch is that these high rates are not permanent. Banks raise and lower APY based on what the Federal Reserve does with interest rates. When the Fed cuts rates, banks follow within weeks or months. When the Fed raises rates, banks compete for deposits by raising their APY. This means the "highest" account today may not be the highest in six months.
The banks offering the top rates change frequently, so checking a rate comparison site (like Bankrate, DepositAccounts, or your bank's website directly) takes five minutes and can save you hundreds of dollars per year. You are looking for accounts labeled "high-yield savings accounts" (HYSA) or "money market accounts" (MMA)—these are the two account types that consistently offer the best rates.
Key Takeaways
- Online banks currently offer APY between 4.5% and 5.35% on savings accounts, while traditional banks offer 0.01% to 0.05%.
- APY rates change when the Federal Reserve adjusts interest rates, so the highest account today may not be the highest in three months.
- High-yield savings accounts (HYSA) and money market accounts (MMA) are the two account types where you will find the top rates.
- You can move money between banks without penalty, so switching to a higher-rate account costs nothing except the time to open it.
How online banks keep rates higher than traditional banks
Online banks have no tellers, no lobby, no rent on a building in a shopping center. They spend money on servers, security, and customer service by phone or chat—costs that scale with the number of customers rather than the number of locations. Because their overhead is lower, they can afford to pay you more on your deposit and still make a profit.
Traditional banks use deposits to fund loans (mortgages, car loans, credit cards). They pay you a low rate on savings so they can lend that money out at a higher rate and pocket the difference. Online banks do the same thing, but because they have fewer expenses, they can offer you a larger share of that difference.
This does not mean online banks are riskier. Most online banks are FDIC-insured, which means your deposits up to $250,000 are protected by the federal government if the bank fails. Check the bank's website or the FDIC's bank search tool to confirm coverage before you open an account.
The difference between high-yield savings accounts and money market accounts
Both account types offer high APY, but they work slightly differently. A high-yield savings account (HYSA) is straightforward: you deposit money, it earns interest, and you can withdraw it whenever you want. Most online banks let you make six withdrawals per month without penalty, though some have removed this limit entirely.
A money market account (MMA) combines features of a savings account and a checking account. You earn interest like a savings account, but you also get a debit card or checkbook so you can spend directly from the account. The tradeoff is that money market accounts sometimes have higher minimum balances (often $2,500 to $10,000) and may charge a fee if you fall below that minimum.
For most people, a high-yield savings account is simpler. You are not spending from it regularly—you are parking money there to earn interest while keeping it safe and accessible. A money market account makes sense if you want to earn interest on money you might need to spend, and you can meet the minimum balance requirement.
What happens to your rate when the Federal Reserve changes interest rates
The Federal Reserve does not set the APY on savings accounts directly. Instead, it sets the federal funds rate, which is the interest rate banks charge each other for overnight loans. When the Fed raises this rate, banks have more incentive to borrow from each other, so they raise the rates they offer to depositors to attract deposits. When the Fed cuts rates, banks lower what they pay you.
The lag is usually two to four weeks. A bank might announce a rate change a few days after the Fed moves, or it might wait a month. During that window, you might see different banks offering different rates on the same day, which is why comparing rates before you move money is worth doing.
If you lock in a rate today and the Fed cuts rates next month, your rate will drop too—there is no such thing as a fixed-rate savings account. The rate you see when you open the account is not a promise; it is the current rate, which changes at the bank's discretion. This is different from a certificate of deposit (CD), where the rate is locked in for a set period (three months, one year, five years, etc.).
How to compare rates and choose an account
Start by visiting a rate comparison site like Bankrate.com, DepositAccounts.com, or NerdWallet. These sites list current APY for high-yield savings accounts and money market accounts at dozens of banks, updated daily. You can sort by rate, minimum balance, or bank name.
Before you open an account, check three things: the current APY, the minimum balance required (if any), and whether the bank is FDIC-insured. You can verify FDIC insurance by searching the bank's name on the FDIC's BankFind tool at ifdcinsured.fdic.gov. If the bank is not FDIC-insured, the interest rate does not matter—your money is not protected.
Once you have chosen a bank, opening an account takes 10 to 15 minutes online. You will need your Social Security number, a government ID, and a current address. Most banks let you fund the account by transferring money from another bank account (usually within one to three business days) or by mailing a check.
Moving money between banks without losing interest
You can move money from one savings account to another without penalty or tax consequence. There is no "switching fee" and no waiting period. The only cost is the time it takes to transfer the money, which is usually one to three business days if you use an ACH transfer (the standard electronic transfer between banks).
If you want to move money faster, some banks offer wire transfers, which can arrive the same day but may cost $15 to $30. For most people, the standard ACH transfer is free and fast enough.
One practical note: if you have money in a savings account earning 0.01% and you move it to an account earning 4.5%, you do not owe taxes on the difference. Interest is taxable income only when you earn it, not when you move the money. The new bank will send you a 1099-INT form at the end of the year showing all interest earned in that account during the year.
Why some banks offer promotional rates and what happens after
Occasionally, a bank will advertise a "promotional APY"—a rate higher than their standard rate, available for a limited time or only on new deposits. For example, a bank might offer 5.50% for the first three months, then drop to 4.75%. These promotions are real, but read the fine print: some require a minimum deposit, some explore only to new customers, and some require you to set up direct deposit or meet other conditions.
Promotional rates are worth taking if you meet the conditions and plan to keep the money there anyway. Just do not expect the promotional rate to last. Once the promotion ends, your rate drops to the standard rate, which may be lower than what other banks are offering at that time. At that point, you can move the money to a different bank if you want.
Frequently Asked Questions
Can I lose money in a high-yield savings account?
No, as long as the bank is FDIC-insured. Your balance is protected up to $250,000 even if the bank fails. The only way your balance goes down is if you withdraw money. The interest rate can drop, but it cannot go negative—you will never owe the bank money for holding your deposit.
Do I have to pay taxes on the interest I earn?
Yes. Interest earned in a savings account is taxable income. The bank will send you a 1099-INT form at the end of the year showing how much interest you earned. You report this on your tax return. The amount is usually small unless you have a large balance or a high APY.
What if I need to withdraw money before a certain date?
You can withdraw from a high-yield savings account anytime without penalty. Money market accounts are the same—no withdrawal penalties. The only account type with restrictions is a certificate of deposit (CD), where you pay a penalty if you withdraw before the maturity date. If you think you might need the money, a high-yield savings account is the right choice.
Is it safe to keep all my money in an online bank?
Yes, if the bank is FDIC-insured. Your deposits are protected the same way they are at a traditional bank. The main difference is that you cannot walk into a branch to deposit a check or withdraw cash. Most online banks let you deposit checks by phone (photograph the check) and withdraw cash at ATMs or by transferring to another bank.
How often do banks change their APY?
Banks can change APY anytime, but most change within a few weeks of a Federal Reserve rate decision. Some banks change weekly or even daily if they are competing for deposits. This is why the rate you see today may not be the rate you see next month. Check your bank's website or sign up for rate alerts to track changes.