The best rate depends on what type of account you want and how much you can deposit

No single bank offers the best rate for everyone. Online banks typically pay 4% to 5% APY on savings accounts, while traditional banks with physical branches pay 0.01% to 0.5%. Credit unions fall somewhere between, usually 1% to 3%. The difference matters: on $10,000, the gap between 0.1% and 4.5% is $440 per year.

The rate you actually get depends on three things: the bank's business model (online banks have lower overhead), the account type (money market accounts sometimes pay more than savings accounts), and current Federal Reserve policy. When the Fed raises rates, banks raise theirs within weeks. When the Fed cuts rates, banks cut theirs more slowly.

You should also check whether the rate requires a minimum balance, whether it drops after a promotional period, and whether the bank is FDIC-insured. A rate that requires $100,000 to open or that expires after three months is not the same offer as one with no strings.

Key Takeaways

  • Online banks currently pay the highest rates on savings accounts—typically 4% to 5% APY—because they have no branch costs to cover.
  • Traditional banks with branches pay much less, usually under 1%, even when the Fed rate is high.
  • The rate you see advertised may require a minimum deposit, may drop after a set period, or may apply only to new customers.
  • All rates move together when the Federal Reserve changes its policy, but online banks usually move first and traditional banks move slower.
  • FDIC insurance protects up to $250,000 per account type per bank, so confirm your bank carries it before moving money.

How to compare rates across different bank types

Start by deciding what you need the account to do. If you want to deposit money once and leave it alone, a high-yield savings account works. If you plan to make frequent deposits and withdrawals, check whether the bank limits transactions—some charge fees after six withdrawals per month. If you want to lock in a rate for a specific time, a certificate of deposit (CD) might work better than a savings account.

Once you know the account type, visit the bank's website and look for the APY listed next to the account name. The APY (annual percentage yield) is what matters—not the interest rate alone, because APY includes compounding. A bank advertising 4.75% APY on a savings account will pay you that rate whether you check your balance daily or never log in.

Write down the rate, the minimum balance required to earn it, and any promotional language ("for new customers only" or "for the first 90 days"). Then check whether the bank is FDIC-insured by searching the FDIC's bank finder at fdic.gov. If it is not, your deposits above $250,000 are not protected if the bank fails.

Online banks versus traditional banks: what the numbers show

Online banks pay more because they operate without the cost of buildings, tellers, and local staff. They pass those savings to customers through higher rates. As of early 2024, online banks like Marcus, Ally, and American Express Personal Savings were paying 4% to 5.35% APY on savings accounts. Traditional banks like Chase, Bank of America, and Wells Fargo were paying 0.01% to 0.35% on the same account type.

The trade-off is access. An online bank has no branch you can walk into. You deposit money by transferring it from another bank account or by mailing a check. You withdraw money the same way—usually within one to three business days. If you need cash immediately or prefer to speak to someone in person, a traditional bank is more convenient, but you will pay for that convenience in lower interest.

Credit unions occupy the middle ground. They are member-owned and often pay better rates than traditional banks but lower rates than online banks. Some credit unions offer 2% to 3% on savings accounts. To join, you usually need to live or work in a specific area or belong to a particular employer or organization. Search for credit unions near you at co-opsharedbranch.org.

Money market accounts and CDs: when they pay more than savings accounts

A money market account is a hybrid between a savings account and a checking account. It usually pays a higher rate than a savings account at the same bank, but it requires a larger minimum balance—often $2,500 to $10,000. You can write checks or use a debit card, but the bank may limit how many withdrawals you make per month. If you have a large sum sitting idle and want to access it occasionally, a money market account can be worth the higher minimum.

A certificate of deposit (CD) locks your money away for a set time—three months, six months, one year, or longer—in exchange for a higher rate. If you withdraw 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 period and want to lock in a rate before the Fed cuts it. Online banks currently pay 4.5% to 5.5% APY on one-year CDs.

The catch: CD rates are fixed. If you lock in 5% for one year and the Fed cuts rates to 2%, you still earn 5%. But if rates rise to 6%, you are stuck at 5%. Some banks offer "no-penalty CDs" that let you withdraw early without a fee, but the rate is usually lower than a standard CD.

What happens to rates when the Federal Reserve changes policy

The Federal Reserve does not set the rate your bank pays you. It sets the federal funds rate—the rate banks charge each other to borrow overnight. When the Fed raises this rate, banks have more incentive to attract deposits, so they raise the rates they pay you. When the Fed cuts the rate, banks cut what they pay you.

The lag matters. When the Fed raises rates, online banks usually raise their rates within days. Traditional banks take weeks or months. When the Fed cuts rates, the pattern reverses: traditional banks cut slowly, but online banks cut faster. This is why online banks tend to pay more during periods of high Fed rates—they move first on the way up.

You can track Fed policy at federalreserve.gov. The Fed meets eight times per year to decide whether to raise, cut, or hold the federal funds rate. The decision is announced at 2 p.m. Eastern time, and rates at banks often shift within 24 hours. If you think the Fed is about to cut rates, locking in a CD now protects you. If you think rates will rise, keeping money in a savings account lets you move it to a higher-paying CD later.

Red flags: promotional rates, minimum balances, and account restrictions

Some banks advertise a high rate that applies only to new customers or only for the first 90 days. After that period, the rate drops to something much lower. Read the fine print. If a bank is offering 5% APY "for new customers for 90 days," ask what the rate becomes after 90 days. If it drops to 0.5%, the account is not worth opening unless you plan to move the money elsewhere before the promotion ends.

Minimum balance requirements also matter. A bank offering 4.5% APY but requiring $25,000 to open is not the same as one offering 4.5% with no minimum. If you have $5,000, the second bank is your only option. Some banks also waive the minimum if you set up automatic monthly deposits—check whether that applies to you.

Finally, confirm the bank is FDIC-insured. Search fdic.gov/BankFind. If the bank is not on the list, your money is not protected by federal insurance if the bank fails. This is rare but not impossible. Stick to FDIC-insured banks unless you have a specific reason not to.

How to move money to a higher-paying bank without losing interest

Opening a new account at a higher-paying bank does not mean closing your old one immediately. You can keep both open while you move money over. Transfer funds from your old bank to the new one using an ACH transfer (usually free and takes one to three business days) or by having the new bank pull the money directly from your old account.

The interest you earned at your old bank up to the day you close the account is yours to keep. Interest accrues daily and is deposited monthly, so if you close an account mid-month, you still receive the interest earned up to that point. There is no penalty for closing a savings account—only CDs charge early withdrawal penalties.

If you have a CD that is about to mature, wait until it matures before moving the money. If you withdraw early, you lose a few months of interest. Once it matures, you can move the funds to a new CD at a higher-paying bank without any penalty.

Frequently Asked Questions

Can I move money between banks without paying a fee?

Yes. ACH transfers between banks are free and take one to three business days. Some banks also offer wire transfers, which are faster (same day) but may cost $15 to $30. For savings accounts, ACH is the standard and costs nothing.

What if the rate drops after I open the account?

The bank can lower the rate on your existing balance at any time, with no penalty to you. You can close the account and move to a higher-paying bank, or you can keep the account open if the rate is still competitive. Rates change constantly, so check your current bank's rate against competitors every few months.

Is my money safe in an online bank?

If the online bank is FDIC-insured, yes—your deposits up to $250,000 are protected the same way they are at a traditional bank. Online banks are regulated by the same federal agencies as brick-and-mortar banks. Confirm FDIC insurance at fdic.gov/BankFind before opening an account.

Do I need a minimum balance to earn the advertised rate?

It depends on the bank and account. Some require $0 minimum; others require $500, $2,500, or more. Read the account details on the bank's website. If the minimum is listed as "$0" or "no minimum," you can open the account with any amount and earn the full rate.

What is the difference between APY and interest rate?

APY (annual percentage yield) includes the effect of compounding—interest earned on interest. Interest rate alone does not. A bank advertising 4.75% APY will pay you that amount per year after compounding is factored in. Always compare APY to APY, not interest rate to APY.