The main ways to earn higher interest right now

The interest rate your bank pays on savings depends on two things: what the Federal Reserve sets as the baseline rate, and how much your bank chooses to pay above that. You cannot control the Fed's rate, but you can control where you keep your money. Banks that operate online typically pay 4% to 5% on savings accounts right now, while many brick-and-mortar banks pay 0.01% to 0.05%. The difference between these two is real money—on $10,000, that is $400 to $500 per year versus $1 to $5 per year.

The fastest way to earn more is to move your savings to an online bank or credit union that publishes a higher rate. You do not have to close your existing account; you can open a second account elsewhere and transfer money. The second approach is to look for a certificate of deposit (CD), which locks your money away for a set time—usually three months to five years—in exchange for a may provide higher rate. CDs currently pay 4.5% to 5.5% depending on the term length. The third option is a money market account, which works like a savings account but usually pays more interest, though it may require a higher opening balance.

Key Takeaways

  • Online banks and credit unions currently pay 4% to 5% on savings accounts, while traditional banks often pay less than 0.1%, so moving your money can add hundreds of dollars per year in interest.
  • Certificates of deposit lock your money for three months to five years and pay 4.5% to 5.5%, but you cannot withdraw without a penalty until the term ends.
  • Money market accounts pay more than regular savings accounts but may require a higher minimum balance and limit how many withdrawals you can make per month.
  • Interest rates change when the Federal Reserve changes its rate, so a rate that is high today may drop in the future—lock in a CD if you want to may provide a rate for years.

How online banks pay more than traditional banks

Online banks have lower overhead costs than banks with physical branches. They do not pay rent on buildings, do not employ tellers, and do not maintain ATM networks. Because their costs are lower, they pass some of that savings to customers in the form of higher interest rates. This is not a promotional offer or a temporary deal—it is how their business model works.

The tradeoff is that you cannot walk into a branch or speak to someone in person. You manage your account through a website or mobile app, and if you need to deposit cash, you either use a partner ATM network (which may charge a fee) or transfer money from another bank account. For most people who keep savings separate from checking and do not need to deposit cash often, this is not a real problem.

Some online banks are subsidiaries of larger traditional banks—for example, Ally Bank is owned by GMAC, and Marcus is owned by Goldman Sachs. Others are independent. All are insured by the FDIC up to $250,000 per account, the same as any other bank. You can compare current rates on sites like Bankrate or DepositAccounts, which update daily as banks change their rates.

Understanding certificates of deposit and when they make sense

A CD is a contract between you and a bank. You give the bank a sum of money, the bank agrees to pay you a fixed interest rate for a set period, and at the end of that period you get your principal plus interest back. The rate does not change, even if the Fed raises or lowers rates during the term. This is useful if you think rates might drop—you lock in the current rate for years.

The catch is that you cannot withdraw your money before the term ends without paying a penalty. The penalty varies by bank and by CD term, but it is usually three to six months of interest. If you open a one-year CD at 5% and withdraw after six months, you might lose $25 in interest (half of the $50 you would have earned). This makes CDs wrong for money you might need soon.

CDs make sense if you have money you will not touch for at least six months to a year, and you want to may provide a rate. They also make sense if you think rates are about to fall—locking in 5% for three years protects you if rates drop to 2%. If you think rates will keep rising, a shorter CD (three or six months) lets you reinvest at a higher rate when it matures.

Money market accounts as a middle ground

A money market account is a hybrid between a savings account and a CD. It pays more interest than a regular savings account—currently 4% to 4.8%—but less than a CD. In return, your money stays accessible. You can withdraw whenever you want without a penalty, though some banks limit you to six withdrawals per month (a federal rule that was suspended during the pandemic but may return).

Money market accounts usually require a higher opening balance than savings accounts, often $2,500 to $10,000. Some also offer a tiered rate structure: the more money you keep in the account, the higher the interest rate. This can be useful if you are building an emergency fund and want to earn more as your balance grows.

The downside is that the rate is not locked in. If the Fed cuts rates, your money market rate will drop along with it. This is different from a CD, where your rate is may provide. Money market accounts are best if you want higher interest than a savings account but need to keep your money accessible.

What happens to your interest when rates change

The Federal Reserve sets a target interest rate range, and banks use this as a baseline. When the Fed raises rates, banks usually raise the rates they pay on savings accounts and money market accounts within days or weeks. When the Fed cuts rates, banks cut what they pay you. This means a rate that is 5% today could be 3% in six months if the Fed cuts rates.

CDs protect you from this because your rate is locked in. If you open a three-year CD at 5%, you earn 5% for the full three years even if the Fed cuts rates to 1%. This is why CDs are attractive when rates are high—you are betting that rates will fall, and you want to lock in the current rate.

Savings accounts and money market accounts move with the market. This is an advantage if rates are rising (your earnings go up automatically), but a disadvantage if rates are falling. There is no way to predict which direction rates will move, so the choice between a CD and a savings account depends on your comfort with uncertainty and how long you can afford to lock your money away.

Comparing rates across banks and account types

Interest rates change constantly, sometimes daily. A bank that pays 5% one week might pay 4.8% the next. To find the best current rate, use a rate comparison site like Bankrate, DepositAccounts, or NerdWallet. These sites update multiple times per day and let you filter by account type (savings, money market, CD) and CD term length (three months, six months, one year, etc.).

When you compare, look at the annual percentage yield (APY), not just the interest rate. APY includes the effect of compounding—how often the bank adds interest to your account. A bank that compounds daily will give you slightly more than a bank that compounds monthly, even at the same stated rate. The APY accounts for this difference.

Also check the minimum opening balance and any monthly fees. Some banks waive fees if you maintain a certain balance; others charge $5 to $10 per month if your balance drops below a threshold. A bank paying 4.9% with a $10 monthly fee is worse than a bank paying 4.7% with no fees, because the fee eats into your earnings.

Moving money between banks without losing interest

You do not have to close your current savings account to open one at a higher-paying bank. You can keep both accounts open and transfer money to the new one. This is useful if you want to test out a new bank before moving all your savings, or if you want to keep a checking account at your current bank for convenience.

When you transfer money, it usually takes one to three business days for the funds to arrive. During this time, your money is in transit and earning interest at neither bank (or at your old bank's rate, depending on the timing). This is not a major concern for most people, but if you are moving a large sum and rates are high, you might lose a few dollars in interest during the transfer.

If you have a CD that is about to mature, you can let it mature at your current bank and then transfer the full amount (principal plus interest) to a new bank's CD at a higher rate. This is called CD laddering when done strategically—you open multiple CDs with different maturity dates so that some mature every few months, letting you reinvest at current rates without locking all your money away for years.

Frequently Asked Questions

Is my money safe in an online bank?

Yes, as long as the bank is FDIC-insured. Your deposits are protected up to $250,000 per account, the same as at any traditional bank. You can check if a bank is FDIC-insured by searching the FDIC's bank database on their website. Online banks are regulated by the same agencies as brick-and-mortar banks.

What is the difference between APR and APY?

APR is the annual percentage rate—the interest rate without accounting for compounding. APY is the annual percentage yield—the actual amount you earn after compounding is factored in. If a bank compounds interest daily, the APY will be slightly higher than the APR. Always compare APY when choosing between accounts.

Can I withdraw from a CD early?

Yes, but you will pay a penalty. The penalty is usually three to six months of interest. Some banks offer no-penalty CDs that let you withdraw early without a penalty, but they pay a lower rate in exchange. If you think you might need the money, a no-penalty CD or a money market account is safer than a traditional CD.

How often does interest get added to my account?

Banks compound interest daily, monthly, or quarterly, depending on the bank. Daily compounding is best because you earn interest on your interest more often. Most online banks compound daily. Check the account details before opening to see how often interest is added.

What if interest rates drop after I open a CD?

Your CD rate stays the same for the full term. This is the whole point of a CD—you lock in a rate and it does not change. If rates drop, you are protected. If rates rise, you are stuck with the lower rate until the CD matures, which is the tradeoff.