Most local banks do not offer high yield savings accounts—online banks do

Local and regional banks typically pay 0.01% to 0.50% APY on savings accounts, while online banks and some credit unions pay 4% to 5.35% APY on the same money. The difference exists because online banks have lower overhead costs and use deposits more aggressively to fund loans. A local bank's savings account is designed to keep your money in the bank's ecosystem, not to compete on rate.

If you want a high yield savings account, you will almost certainly need to move your money to an online bank, a credit union, or a money market account at a brokerage. Some local banks do offer money market accounts or certificates of deposit (CDs) that pay higher rates, but these are not savings accounts—they have different rules about withdrawals and minimum balances.

The trade-off is access. A local bank gives you a branch, a teller, and a relationship manager. An online bank gives you a higher rate and a phone number. Which one matters more depends on how often you actually use the branch.

Key Takeaways

  • Local and regional banks typically pay under 0.50% APY on savings accounts, while online banks pay 4% to 5.35% APY on the same account type.
  • Online banks offer higher rates because they have no physical branches and lower operating costs, so they pass savings to depositors.
  • Some local banks offer money market accounts or CDs that pay competitive rates, but these are not savings accounts and have withdrawal restrictions.
  • If you keep most of your money at a local bank for convenience or relationship reasons, moving only your savings to an online bank is a common strategy.

Why local banks pay less on savings

A local bank's business model depends on keeping deposits in-house. They pay you a low rate on savings so they can lend that money out at a higher rate—the difference is their profit margin. They also have to cover the cost of the branch, the staff, the ATM network, and the technology. That cost gets passed to you as a lower rate.

Online banks have no branches. They have a website, a mobile app, and a call center. Their cost per customer is much lower, so they can afford to pay you more. They also tend to be subsidiaries of larger financial companies or are funded by venture capital, which means they can operate on thinner margins while they build market share.

Credit unions sometimes pay higher rates on savings because they are member-owned cooperatives, not profit-driven corporations. But even credit unions rarely match the rates of the largest online banks, because they serve smaller member bases and cannot achieve the same economies of scale.

What local banks do offer instead of high yield savings

Many local banks offer money market accounts that pay rates closer to online savings accounts. A money market account is a hybrid: it works like a savings account but often requires a higher minimum balance (sometimes $2,500 to $10,000) and limits the number of withdrawals you can make per month. Some money market accounts also come with a debit card or checkbook, which a regular savings account does not.

Local banks also offer certificates of deposit (CDs), which lock your money away for a set term—usually three months to five years—in exchange for a may provide rate. CD rates at local banks are often competitive with online savings rates, but you cannot touch the money without paying an early withdrawal penalty. A CD makes sense if you know you will not need the money for a specific period.

Ask your local bank directly what rates they offer on money market accounts and CDs. Rates vary by bank and by the size of your deposit, and they change weekly or monthly. You may find that a local bank's CD rate is worth the trade-off of being locked in.

How to compare a local bank rate to an online bank rate

Start by calling or visiting your local bank's website and asking for the current APY on a regular savings account. Write it down. Then visit the websites of three to five online banks—Ally, Marcus, Wealthfront, or American Express Personal Savings are common choices—and note their current rates.

The difference will likely be 3% to 5% per year. On $10,000, that is $300 to $500 per year in lost interest if you keep the money at your local bank. On $50,000, it is $1,500 to $2,500 per year. The longer you leave the money there, the more the gap compounds.

If you decide to move money to an online bank, you do not have to close your local bank account. Many people keep a checking account at their local bank for everyday spending and bill pay, and move their savings to an online bank. You can transfer money between them using ACH (which takes one to three business days) or by setting up an external transfer.

When a local bank savings account makes sense anyway

A local bank savings account makes sense if you use the branch regularly for other reasons—depositing cash, getting a cashier's check, or talking to a loan officer about a mortgage. If you are already there, the convenience of keeping your savings in the same place might outweigh the lower rate.

It also makes sense if you have a very small amount of money to save—under $1,000—because the difference in interest is negligible. A $500 savings account earning 0.01% makes you 5 cents per year; earning 5% makes you $25 per year. The effort to open an online account is not worth $20.

Some people also keep a small local bank savings account as a backup or emergency fund, separate from their main online savings. This is a personal choice about redundancy and risk, not a financial one.

How to move money from a local bank to an online bank

Most online banks let you link your local bank account and transfer money electronically. You will need your local bank's routing number and your account number, both of which appear on the bottom of your checks or in your online banking portal.

The first transfer usually takes three to five business days. After that, the online bank may offer faster transfers or even same-day transfers if you set up a direct deposit or recurring transfer. Some online banks also offer a sign-up bonus if you transfer in a certain amount of money within a set period—read the terms carefully, because these bonuses sometimes come with strings.

You do not have to close your local bank account when you move your savings. Keep it open if you use it for checking or other services. If you do decide to close it, call the bank and ask what happens to any automatic payments or direct deposits linked to that account.

Frequently Asked Questions

Can I get a high yield savings account at my credit union?

Some credit unions offer savings rates between 2% and 4%, which is higher than most local banks but lower than the largest online banks. Rates depend on the credit union's size and funding. Call your credit union and ask for their current savings rate, or check their website. Credit unions are FDIC-insured up to $250,000, just like banks.

What if I need to withdraw money from a money market account?

Money market accounts typically allow six withdrawals per month without penalty. After that, you may face a fee or the bank may convert the account to a checking account. Check your bank's terms before you open one. If you need frequent access to your money, a regular savings account or online savings account is better.

Do I lose FDIC insurance if I move my money to an online bank?

No. Online banks are FDIC-insured the same way local banks are. Your deposits are covered up to $250,000 per account type per bank. If you have multiple accounts at the same online bank, each type (savings, checking, money market) is insured separately up to $250,000.

What happens to my interest if I transfer money mid-month?

Interest is usually calculated daily and paid monthly. If you transfer money out before the end of the month, you lose interest on that money for the days it was not in the account. The exact timing depends on the bank's policy, so ask before you transfer.

Can I keep my local bank checking account and move only savings to an online bank?

Yes. Many people do this. You can link the two accounts and transfer money between them as needed. Your checking account stays at your local bank for everyday use, and your savings earn a higher rate at an online bank.