The banks offering the highest rates right now are online banks, not the ones on your street corner
The bank with the best interest rate for you depends on what you're saving for and how much money you have. Online banks like Marcus, Ally, and American Express Personal Savings typically offer rates two to five times higher than Chase, Bank of America, or Wells Fargo. A traditional bank might pay 0.01% APY on a savings account; an online bank might pay 4.5% to 5.3% on the same account. The difference matters: on $10,000, that's $1 per year versus $450 to $530 per year.
The catch is that online banks have no physical branches. You deposit money by transfer from another bank, and you withdraw the same way. If you need cash immediately or prefer talking to someone in person, a traditional bank is more convenient—but you'll pay for that convenience with lower rates.
Rates change constantly. A bank offering 5.3% today might drop to 4.8% in three months. The rate you see advertised is only may provide for new deposits; existing money sometimes earns a different rate. Always check the current rate on the bank's website before you move money, not just the rate you remember from last month.
Key Takeaways
- Online banks typically pay 4% to 5.3% APY on savings accounts, while traditional banks pay 0.01% to 0.05%, a difference of hundreds of dollars per year on $10,000.
- The highest rates are found at Marcus, Ally, American Express Personal Savings, and Discover, though rates shift monthly and vary by account type.
- Money market accounts and certificates of deposit (CDs) often pay higher rates than savings accounts at the same bank, but lock your money away for a set time.
- Rates advertised online are current only at the moment you check; confirm the rate on the bank's website before transferring money.
- FDIC insurance covers up to $250,000 per account type at each bank, so splitting large amounts across multiple banks protects your full balance.
How online banks pay more than traditional banks
Online banks have lower overhead costs than brick-and-mortar banks. They don't maintain thousands of branches, employ tellers, or pay for real estate in expensive locations. That savings gets passed to customers as higher interest rates on deposits. A traditional bank needs to pay for the convenience of a physical location; an online bank passes that cost savings to you instead.
Online banks also compete more aggressively for deposits because they can't rely on customers who walk in the door. Marcus and Ally need to attract savers with rates, not location. When the Federal Reserve raises its benchmark rate, online banks typically raise deposit rates faster than traditional banks do. When rates fall, online banks often drop rates more slowly—but they still drop them eventually.
The trade-off is access. You cannot walk into an online bank and withdraw cash. You transfer money electronically to another bank account you control, and that transfer takes one to three business days. If you need cash for an emergency, you'll need a backup account at a bank with ATMs or a debit card that works at ATM networks.
Comparing rates across account types
Savings accounts and money market accounts usually pay the same rate at the same bank, but money market accounts sometimes offer a slightly higher rate in exchange for a higher minimum balance—often $2,500 to $10,000. Certificates of deposit (CDs) almost always pay more than savings accounts because your money is locked away for a fixed term: three months, six months, one year, or longer. A one-year CD might pay 5.4% while a savings account at the same bank pays 5.0%.
The penalty for withdrawing from a CD early can erase the higher rate you earned. If you withdraw from a one-year CD after six months, the bank deducts the penalty from your interest and sometimes from your principal. A CD makes sense only if you're certain you won't need the money before the term ends.
High-yield savings accounts (HYSA) are the most common choice for emergency funds because they pay high rates and let you withdraw anytime without penalty. They're not the same as regular savings accounts at traditional banks. A "high-yield" savings account at an online bank pays 4% to 5.3%; a regular savings account at Chase pays 0.01%.
Banks and credit unions currently offering competitive rates
| Bank or Credit Union | Account Type | Approximate Current Rate | Minimum Balance |
|---|---|---|---|
| Marcus by Goldman Sachs | High-Yield Savings | 4.5% to 5.0% | $0 |
| Ally Bank | High-Yield Savings | 4.5% to 5.0% | $0 |
| American Express Personal Savings | High-Yield Savings | 4.5% to 5.3% | $0 |
| Discover Bank | High-Yield Savings | 4.5% to 5.0% | $0 |
| Pentagon Federal Credit Union | High-Yield Savings | 4.5% to 5.0% | $0 |
| Connexus Credit Union | High-Yield Savings | 4.5% to 5.0% | $0 |
These rates are approximate and change frequently. Check each bank's website directly before moving money. Some banks offer different rates for different balance tiers—for example, balances under $100,000 might earn 5.0% while balances over $100,000 earn 4.8%. Others offer a promotional rate for the first few months, then drop to a lower rate.
Credit unions sometimes offer competitive rates on savings accounts, but you must be a member to open an account. Membership requirements vary: some credit unions are open to anyone who lives or works in a certain area, while others require membership in a specific employer or organization. Pentagon Federal and Connexus have broader membership rules than most.
What to check before moving your money
Confirm the rate is may provide for your deposit type and balance level. Some banks advertise a headline rate but only pay it on balances under $100,000. Read the fine print on the bank's website, not just the rate shown in ads. The rate you see might be a promotional rate that expires after three or six months.
Verify that the bank is FDIC-insured (for banks) or NCUA-insured (for credit unions). This insurance protects your money up to $250,000 per account type at each institution. If a bank fails, the FDIC pays you back. Online banks are insured the same way as traditional banks; the lack of a physical location doesn't affect your protection.
Check whether the bank charges monthly fees or requires a minimum balance to earn the advertised rate. Most online banks charge no monthly fee and have no minimum balance, but some require you to set up automatic transfers or maintain a linked checking account. Read the account agreement before you open the account.
Test the bank's transfer system with a small deposit first. Move $100 from your current bank to the new bank and confirm it arrives in the timeframe the bank promised. Then move the rest. This takes an extra few days but protects you from discovering a problem after you've moved a large sum.
How to move money without losing interest
Interest accrues daily but is usually paid monthly. If you move money on the 15th of the month, you'll earn interest from the 15th through the end of the month at your old bank, then earn interest starting the 1st of the next month at your new bank. You don't lose a full month of interest by switching mid-month.
Some banks offer a grace period: they'll pay you the advertised rate even if your money hasn't fully settled yet. Others start paying the rate only after the transfer clears, which takes one to three business days. Ask the new bank when the rate begins before you transfer.
If you're moving money from a CD that hasn't matured yet, you'll pay an early withdrawal penalty. Calculate whether the higher rate at the new bank will make up for the penalty over the time you plan to keep the money. If you have a one-year CD paying 4.5% and you withdraw after six months with a penalty of $100, you'd need to earn at least $100 more at the new bank to break even.
Why rates vary between banks and over time
Banks set deposit rates based on the Federal Reserve's benchmark rate and on how much money they need to attract. When the Fed raises its rate, banks can afford to pay more on deposits because they earn more on loans. When the Fed cuts rates, banks lower deposit rates too—but not always at the same speed or by the same amount.
A bank that needs deposits urgently will offer a higher rate to attract them. A bank that has plenty of deposits might lower its rate because it doesn't need more money. This is why rates vary so much between banks even when the Fed's rate is the same.
Rates also change seasonally. Banks sometimes offer promotional rates in January or after major holidays to attract year-end savers. These promotional rates are usually higher than the regular rate but expire after a set period, often three to six months.
Frequently Asked Questions
Is my money safe at an online bank?
Yes, if the bank is FDIC-insured. Check the bank's website or the FDIC's bank search tool to confirm. FDIC insurance covers up to $250,000 per account type per bank, the same protection you get at a traditional bank. The lack of a physical location doesn't affect your protection.
Can I withdraw money anytime from a high-yield savings account?
Yes, without penalty. High-yield savings accounts let you withdraw anytime. Transfers to another bank take one to three business days, but you can request the withdrawal immediately. CDs are different—withdrawing early triggers a penalty that can erase your interest.
What happens to my rate if the bank lowers it?
Your rate will drop to the new rate. Banks can change deposit rates anytime without notice. Your existing money earns the new rate, not the rate you opened the account at. This is why rates advertised today might be lower next month.
Should I split my money across multiple banks?
If you have more than $250,000, yes. FDIC insurance covers $250,000 per account type at each bank. If you have $500,000 in savings, split it between two banks so both amounts are fully insured. You can also open different account types (savings, money market, CD) at the same bank and each type is insured separately up to $250,000.
Do I need a checking account to open a savings account at an online bank?
Usually not. Most online banks let you open a savings account without a checking account. You'll need a way to transfer money in and out, which means having a checking account at another bank. Some online banks offer both checking and savings; others offer only savings.