High-yield savings accounts and money market accounts pay the most right now
The account type that pays the highest interest is a high-yield savings account (HYSA) or money market account. These are offered by online banks, credit unions, and some traditional banks. As of early 2024, rates on these accounts range from around 4.5% to 5.35% APY, though the exact rate depends on the bank and changes weekly based on Federal Reserve decisions.
Traditional brick-and-mortar banks typically pay much less—often 0.01% to 0.5% APY on regular savings accounts. The difference matters: on $10,000, a high-yield account at 5% pays roughly $500 per year, while a traditional bank at 0.1% pays $10. Online banks can offer higher rates because they have lower overhead costs than physical branches.
The catch is that rates are not locked in. When the Federal Reserve raises or lowers interest rates, banks adjust their APY within days or weeks. A rate that is high today may drop in six months. You should check current rates before opening an account, but understand that the rate you see is not a may provide for the life of the account.
Key Takeaways
- High-yield savings accounts and money market accounts currently pay 4.5% to 5.35% APY, compared to 0.01% to 0.5% at traditional banks.
- Online banks offer higher rates because they have lower operating costs than banks with physical branches.
- Interest rates change frequently and are tied to Federal Reserve policy, so a rate advertised today may be lower in a few months.
- Your deposits are insured up to $250,000 per account type per bank by the FDIC or NCUA, so the bank's size or reputation does not affect your protection.
- Some accounts require a minimum deposit or have withdrawal limits, so read the terms before you open.
How to compare rates across banks
Start by checking the current rates on sites like Bankrate, DepositAccounts, or the banks' own websites. These sites update daily and let you filter by account type and sort by APY. Write down the rate, the minimum deposit (if any), and whether there are monthly fees. A high rate is only valuable if you are not paying fees that eat into your earnings.
Look at the fine print for withdrawal limits. Some money market accounts limit you to six withdrawals per month, or charge a fee if you exceed that. High-yield savings accounts usually have no withdrawal limit, but confirm this before you open. If you think you will need to move money in and out frequently, a no-limit account is worth a slightly lower rate.
Check whether the bank is FDIC-insured (for banks) or NCUA-insured (for credit unions). This protects your money up to $250,000 per account type per institution if the bank fails. A smaller online bank with a higher rate is just as safe as a large traditional bank, as long as it carries this insurance. You can verify FDIC status on the FDIC's website or NCUA status on the NCUA's site.
High-yield savings accounts versus money market accounts
Both pay high interest, but they work slightly differently. A high-yield savings account is straightforward: you deposit money, it earns interest, and you can withdraw it anytime without penalty. Most have no minimum balance and no withdrawal limits. The rate is variable, meaning it can change at any time.
A money market account is a hybrid between a savings account and a checking account. It usually pays a higher rate than a high-yield savings account, but often requires a larger minimum deposit (sometimes $2,500 or more) and may limit withdrawals to six per month. Some money market accounts come with a debit card or checks, so you can access your money more easily than with a savings account.
For most people, a high-yield savings account is simpler: no withdrawal limits, no minimum balance, and nearly as high a rate. Use a money market account if you have a large sum to deposit and do not need frequent access, or if the rate difference is significant enough to justify the restrictions.
Certificates of deposit (CDs) lock in a rate for a set time
A certificate of deposit (CD) is different from a savings account because you agree to leave your money untouched for a fixed period—usually three months to five years. In exchange, the bank locks in a higher rate that will not change, even if the Federal Reserve cuts rates. Current CD rates range from around 4.5% to 5.5% APY depending on the term length.
The tradeoff is access. If you withdraw money before the CD matures, you pay an early withdrawal penalty, usually equal to a few months of interest. A one-year CD might charge three months of interest if you cash it out early. This makes CDs best for money you know you will not need for a while.
CDs are useful if you want to lock in a rate before it drops, or if you want to avoid the temptation to spend the money. They are not useful if you might need the cash within the term, or if you want to take advantage of rising rates (because your rate is locked in and will not go up).
Credit unions often pay more than banks
Credit unions are member-owned financial institutions that sometimes pay higher rates than banks on savings accounts. Not all credit unions offer high rates, but many do. Credit union savings accounts are insured by the NCUA up to $250,000, the same as FDIC insurance for banks.
To open an account at a credit union, you usually have to meet a membership requirement—working for a certain employer, living in a certain area, or belonging to a certain organization. Some credit unions have opened membership to anyone, so it is worth checking whether you are already a member or whether you can join. Credit unions also tend to have lower fees and better customer service than large banks, though this varies by institution.
If you have access to a credit union, compare its rates to online banks before you decide. A credit union with a 5% rate and no fees may be better than an online bank with a 5.2% rate and a $25 monthly fee, depending on your balance.
What happens to your interest if rates drop
If the Federal Reserve lowers rates, banks will lower the APY on your account within days or weeks. Your existing balance will start earning less interest going forward. This is why it is important to lock in a rate with a CD if you think rates are about to fall—once you buy a CD, that rate is yours for the full term, regardless of what happens in the market.
If you have money in a high-yield savings account and rates drop, you have two options: keep the money where it is and accept the lower rate, or move it to a different bank that is still offering a higher rate. There is no penalty for moving money out of a savings account, so you can switch banks as often as you want to chase the best rate.
This is why some people move money between banks every few months—to stay in the highest-paying account. This strategy works if you have the time to monitor rates, but it is not necessary. Even if your rate drops from 5% to 4%, you are still earning far more than you would at a traditional bank.
Frequently Asked Questions
Can I open multiple high-yield savings accounts at different banks?
Yes. Each account is insured separately up to $250,000 by the FDIC, so you can spread your money across multiple banks and accounts. Some people open accounts at several banks to maximize their interest earnings, though this requires tracking multiple logins and statements.
What is the difference between APY and APR?
APY (annual percentage yield) includes the effect of compounding—interest earned on your interest. APR (annual percentage rate) does not. For savings accounts, always look at APY, because that is the actual amount you will earn. Banks are required to show APY for savings accounts.
Do I have to pay taxes on interest I earn?
Yes. Interest earned on savings accounts is taxable income. Banks send you a 1099-INT form at the end of the year if you earned $10 or more in interest. You report this on your tax return. The higher your rate, the more tax you may owe, so factor this in when comparing accounts.
Is my money safe in an online bank?
Yes, as long as the bank is FDIC-insured. Online banks are regulated the same way as traditional banks, and your deposits are protected up to $250,000. The bank's size or how long it has been in business does not affect your protection—only FDIC insurance matters.
What if I need to withdraw money before a CD matures?
You can withdraw, but you will pay an early withdrawal penalty. The penalty is usually a set number of months of interest—for example, three months of interest on a one-year CD. Calculate whether the interest you have earned so far is worth more than the penalty before you withdraw.