Banks and credit unions pay different rates, and the differences are large enough to matter
The bank that pays you the most interest is usually not the one with a branch near your house. Online banks typically pay 4 to 5 times higher rates than traditional banks because they have lower costs — no physical buildings, fewer staff, less overhead. Credit unions often pay more than traditional banks but usually less than online banks. The rate you actually receive depends on the type of account, how much you deposit, and the current economic environment, which changes several times a year.
The highest rates right now are on high-yield savings accounts and certificates of deposit (CDs). These are not investment accounts — your money is insured by the federal government up to $250,000. The tradeoff is that you earn more interest but have less access to your cash, especially with CDs, where you agree to leave the money untouched for a set period.
Key Takeaways
- Online banks consistently pay higher interest rates than brick-and-mortar banks because they operate with lower overhead costs.
- Credit unions may pay more than traditional banks but typically less than online banks, though some credit unions offer competitive rates.
- High-yield savings accounts and certificates of deposit pay the highest rates, but CDs require you to lock your money away for a fixed term.
- The rate you receive changes based on what the Federal Reserve does with interest rates, which shifts several times per year.
- Comparing rates across multiple banks takes 15 minutes and can earn you hundreds of dollars more per year on the same deposit.
Why online banks pay more than traditional banks
A traditional bank with physical branches pays rent, utilities, and salaries for tellers and loan officers. Those costs get passed to customers through lower interest rates on savings. An online bank has no branches, no tellers, and a smaller staff because customers do everything through a website or app. That savings in overhead translates directly into higher rates paid to depositors.
Online banks also tend to be newer and more aggressive about competing for deposits. They use high rates as their main marketing tool because they cannot rely on convenience or brand recognition the way established banks do. This competition benefits you — it pushes rates higher across the entire online banking sector.
How credit unions compare
Credit unions are member-owned financial institutions, not corporations. Because they do not have shareholders demanding profits, they can return earnings to members through higher rates and lower fees. However, credit unions vary widely. Some pay rates nearly as high as online banks; others pay only slightly more than traditional banks.
The rate a credit union offers depends on its size, its financial health, and its strategy. A large credit union with thousands of members may have economies of scale that let it pay competitive rates. A small credit union may not have the resources to match online banks. Before opening an account, check what rate a specific credit union is currently offering — do not assume all credit unions pay the same.
High-yield savings accounts versus certificates of deposit
A high-yield savings account works like a regular savings account but pays much more interest. You can deposit and withdraw money whenever you want with no penalty. The rate can change, usually monthly, based on what the Federal Reserve does. If rates drop, your rate drops too. If rates rise, your rate rises. This flexibility is valuable if you might need the money soon.
A certificate of deposit (CD) locks your money away for a set period — typically 3 months, 6 months, 1 year, or 5 years. In exchange, the bank pays you a higher rate that does not change. If you withdraw the money early, you pay a penalty, usually a few months of interest. CDs make sense if you know you will not need the money for a specific amount of time and want to lock in a rate before rates drop.
Right now, CDs often pay slightly more than high-yield savings accounts because you are giving up access. The difference is usually small — less than 0.5 percentage points — so the choice depends on whether you might need the money.
What moves interest rates up and down
The Federal Reserve, which is the central bank of the United States, sets a target interest rate that influences all other rates in the economy. When the Fed raises its rate, banks eventually raise the rates they pay on savings. When the Fed lowers its rate, banks lower savings rates. This happens with a delay — sometimes weeks, sometimes months — and banks do not always move in lockstep.
The Fed changes rates based on inflation and employment. If inflation is high, the Fed raises rates to cool down the economy. If the economy is weak, the Fed lowers rates to encourage borrowing and spending. These changes happen several times per year, so the best rate today may not be the best rate in three months. This is why comparing rates regularly matters if you are moving money between accounts.
How to find the current best rates
The best way to find high rates is to visit bank websites directly and look for the rate listed on the savings account or CD page. Most banks display the current rate prominently. Write down the rate, the account type, and the minimum deposit required. Then check three to five other banks — online banks, a credit union, and possibly a traditional bank — and compare.
Some websites aggregate bank rates, but they do not always update when ready and may not include every bank. Checking bank websites directly takes 15 to 20 minutes and gives you the most current information. Pay attention to the minimum deposit — some banks require $1,000 or $2,500 to open an account, while others have no minimum. Also check whether the rate applies to all deposits or only deposits above a certain amount.
Once you open an account, set a reminder to check rates again in three to six months. If another bank is paying significantly more — usually 0.5 percentage points or higher — moving your money may be worth the effort. The difference between 4.5% and 5.0% on $10,000 is $50 per year, which adds up over time.
Banks that currently offer competitive rates
Online banks that frequently appear at the top of rate comparisons include Marcus by Goldman Sachs, Ally Bank, American Express Personal Savings, and Discover Bank. Credit unions like Connexus Credit Union and Pentagon Federal Credit Union have also offered competitive rates, though availability depends on membership requirements. Traditional banks like Chase, Bank of America, and Wells Fargo typically pay much lower rates on savings accounts.
This list changes as rates shift and banks adjust their strategies. A bank that pays the highest rate today may not pay the highest rate next month. The names here are examples of where to start looking, not a recommendation to choose any particular bank. Always check current rates before opening an account.
Frequently Asked Questions
Is my money safe in an online bank?
Yes. Online banks are insured by the Federal Deposit Insurance Corporation (FDIC) the same way traditional banks are. Your deposits are protected up to $250,000 per account type per bank. The only difference is that you cannot walk into a branch — you manage everything online or by phone.
Can I move money between banks if I find a better rate?
Yes. You can withdraw money from one bank and deposit it in another with no penalty on the savings account side. The process takes a few business days. Some banks offer tools to transfer money directly between accounts, which is faster than withdrawing and redepositing.
What happens to my rate if the Federal Reserve lowers interest rates?
If you have a high-yield savings account, your rate will drop, usually within a few weeks. If you have a CD, your rate stays the same until the CD matures. This is one reason CDs can be valuable — you lock in a rate before it drops.
Do I need a minimum deposit to get the advertised rate?
Most banks advertise the rate available to all customers, but some require a minimum deposit — often $1,000 to $25,000 — to open the account. Check the fine print on the bank's website. If you have less than the minimum, look for a bank with no minimum requirement.
Should I put all my money in a CD to lock in the current rate?
Only if you will not need the money before the CD matures. If you withdraw early, you pay a penalty that can erase months of interest. If you might need the money, a high-yield savings account gives you flexibility with only a slightly lower rate.