The best rate depends on the type of account and where you look

There is no single "best" savings account interest rate because rates change daily and vary by bank, account type, and deposit amount. Right now, high-yield savings accounts at online banks typically offer rates between 4% and 5.35% APY, while traditional brick-and-mortar banks often offer 0.01% to 0.5% APY on regular savings accounts. Money market accounts and certificates of deposit (CDs) offer different rates for different terms. The rate you actually get depends on which institution you choose and when you open the account.

The gap between online banks and traditional banks exists because online banks have lower overhead costs — no physical branches, fewer staff — so they pass higher rates to depositors. A traditional bank might offer 0.05% APY while an online bank offers 4.75% APY on the same $10,000 deposit. Over one year, that difference means roughly $475 more in your account at the online bank.

Key Takeaways

  • Online banks currently offer the highest savings rates, typically 4% to 5.35% APY, compared to 0.01% to 0.5% at traditional banks.
  • Rates change frequently and vary by institution, so the "best" rate today may not be the best rate next month.
  • Money market accounts and CDs offer competitive rates but lock your money away for set periods or charge fees for early withdrawal.
  • The FDIC insures deposits up to $250,000 per account type per bank, so a higher rate does not mean higher risk if the bank is FDIC-insured.
  • You can compare current rates across multiple banks using rate-tracking websites, but you must verify the rate directly with the bank before opening an account.

How online banks offer higher rates than traditional banks

Online banks have no physical locations, which cuts their operating costs significantly. They do not pay for building leases, teller salaries, or branch management. That cost savings gets passed to customers through higher interest rates on savings accounts. A bank like Marcus, Ally, or American Express Personal Savings can afford to offer 4.75% APY because they are not maintaining a network of branches.

Traditional banks — Chase, Bank of America, Wells Fargo — still offer savings accounts, but their rates are much lower because they maintain thousands of branches. A Chase savings account might earn 0.01% APY. The bank uses your deposit to fund loans and other investments, and the interest rate you receive is what remains after the bank covers its costs and takes its profit. Online banks straightforward have lower costs to cover, so they can offer more of the interest to you.

This does not mean online banks are riskier. Most online banks are FDIC-insured just like traditional banks, meaning your deposits up to $250,000 are protected if the bank fails. The higher rate is not compensation for risk — it is a result of lower operating costs.

Where rates are highest right now and how they change

As of early 2024, the highest savings account rates cluster between 4.5% and 5.35% APY at online banks including Marcus, Ally, American Express Personal Savings, and Wealthfront. These rates are not permanent. The Federal Reserve sets a benchmark interest rate, and when that rate changes, banks adjust their savings rates within days or weeks. When the Fed raised rates from 2020 to 2023, savings rates climbed from near 0% to current levels. If the Fed cuts rates, savings rates will fall.

Rate-tracking websites like DepositAccounts.com, BankRate.com, and NerdWallet display current rates across multiple banks, updated daily. These sites show you the range of what is available, but the rate shown may change by the time you open an account. Always check the bank's own website or call directly before depositing money, because the rate you see on a comparison site may be outdated by hours.

Some banks offer promotional rates for new customers — for example, 5.35% APY for the first three months, then 4.75% APY after that. Read the fine print to understand when the rate changes and what the ongoing rate will be.

Money market accounts and CDs as alternatives to savings accounts

A money market account is a hybrid between a savings account and a checking account. It typically offers a higher interest rate than a savings account — currently 4.5% to 5.25% APY at online banks — but may require a higher minimum deposit and limits how many withdrawals you can make per month. Some money market accounts come with a debit card or check-writing privileges, which savings accounts do not.

A certificate of deposit (CD) locks your money for a set period — 3 months, 6 months, 1 year, 5 years — in exchange for a may provide rate. A 1-year CD might offer 5.0% APY, while a 5-year CD might offer 4.8% APY. The longer you lock the money away, the more certainty the bank has, but rates do not always increase with term length. If you withdraw money before the CD matures, you pay an early withdrawal penalty, usually a few months of interest. CDs are useful if you know you will not need the money for a specific period and want a may provide return.

How to compare rates across banks safely

Start with a rate-tracking website to see the current landscape. DepositAccounts.com lists rates from hundreds of banks, organized by account type. BankRate.com and NerdWallet do the same with slightly different layouts. These sites are free and do not require you to enter personal information.

Once you identify a few banks with competitive rates, visit each bank's website directly and confirm the rate shown. Rates on comparison sites can lag by a few hours. Check whether the rate applies to your deposit amount — some banks offer higher rates on larger deposits, such as $25,000 or more. Confirm the account type: a "high-yield savings account" is different from a "money market account," and rates differ.

Before opening an account, verify that the bank is FDIC-insured. The FDIC website (fdic.gov) has a tool called BankFind where you can search any bank by name and see its insurance status. If a bank is not FDIC-insured, your deposits are not protected if the bank fails, which is rare but possible.

What happens to your rate after you open the account

The rate you lock in when you open a savings account is not permanent. Banks can lower rates at any time without notice, though they typically give customers a grace period of a few days. If you open a savings account at 4.75% APY and the Fed cuts rates, your bank may lower your rate to 4.25% APY within weeks. You are not locked into the original rate.

This is why it makes sense to shop around periodically. If your current bank drops its rate to 3.5% APY and another bank is offering 4.75% APY, you can open a new account at the higher-rate bank and transfer your money. There is no penalty for moving savings between banks. Some people maintain accounts at multiple banks to take advantage of the best rates available at any given time.

Promotional rates are temporary by definition. If a bank offers 5.35% APY for new customers for three months, that rate expires after three months. The bank will notify you of the new rate before it changes, usually in writing or through your online account.

The relationship between Fed rates and savings account rates

The Federal Reserve does not set savings account rates directly. Instead, it sets the federal funds rate, which is the rate banks charge each other for overnight loans. When the Fed raises this rate, banks have an incentive to raise the rates they offer on savings accounts to attract deposits. When the Fed lowers this rate, banks lower savings rates because they have less incentive to attract deposits.

The lag between a Fed rate change and a savings rate change is usually a few days to a few weeks. If the Fed raises rates on a Wednesday, some banks will raise their savings rates by Friday. Others may wait a few weeks. The relationship is not one-to-one — if the Fed raises rates by 0.5%, savings rates do not necessarily rise by exactly 0.5%.

You can track Fed rate decisions through the Federal Reserve's website (federalreserve.gov). The Fed meets eight times per year and announces rate decisions on scheduled dates. If you are watching your savings rate and wondering why it might change soon, check the Fed's calendar for upcoming meetings.

Frequently Asked Questions

Is a higher savings rate worth switching banks?

It depends on the difference and your balance. If you have $50,000 and your current bank offers 0.5% APY while another offers 4.75% APY, the difference is roughly $2,125 per year. Switching takes 10 minutes online. If the difference is 0.1% on a $1,000 balance, the difference is $1 per year, which is not worth the effort. Calculate the annual difference and decide if it matters to you.

Can I lose money in a high-yield savings account?

No, as long as the bank is FDIC-insured. Your balance will never decrease due to the bank's actions. The interest rate can go down, which means you earn less interest, but your principal is protected. If the bank fails, the FDIC covers your deposit up to $250,000.

Do I have to keep a minimum balance to earn the advertised rate?

Some banks require a minimum balance, others do not. Check the account terms before opening. Some banks offer the full rate on any balance, while others offer the full rate only on balances above a certain amount, such as $25,000. If your balance drops below the minimum, the rate may drop or you may be charged a monthly fee.

What is the difference between APY and APR for savings accounts?

APY (annual percentage yield) includes the effect of compounding — interest earned on interest. APR (annual percentage rate) does not. For savings accounts, always look at APY, not APR. A bank advertising APY is showing you the true annual return on your money.

Should I put all my money in the highest-rate account?

If the bank is FDIC-insured and you have less than $250,000, yes. If you have more than $250,000, you should split it across multiple banks so each deposit is under the $250,000 insurance limit. You can also open multiple account types at the same bank — a savings account and a money market account — and each is insured separately up to $250,000.