The highest interest rates are in high-yield savings accounts, money market accounts, and certificates of deposit (CDs), not in regular savings accounts at big banks
A regular savings account at a major bank typically pays 0.01% to 0.05% annual interest. A high-yield savings account at an online bank or credit union can pay 4% to 5.35% as of early 2024. That difference matters: on $10,000, you'd earn roughly $1 to $5 per year in a regular account, or $400 to $535 per year in a high-yield account. The catch is that rates change constantly, and the highest rate today may not be the highest next month.
The reason online banks pay more is simple: they have lower overhead costs than brick-and-mortar branches. They pass some of that savings to depositors through higher rates. Credit unions, which are member-owned nonprofits, also tend to pay more than large national banks because they're not trying to maximize profit for shareholders.
Your money stays safe in any of these accounts because deposits up to $250,000 are insured by the FDIC (Federal Deposit Insurance Corporation) if the bank fails, or by the NCUA (National Credit Union Administration) if it's a credit union. That insurance applies whether you earn 0.01% or 5%.
Key Takeaways
- High-yield savings accounts at online banks currently pay 4% to 5.35% annually, compared to 0.01% to 0.05% at traditional banks.
- Money market accounts and CDs can pay similar or higher rates, but money market accounts may have withdrawal limits and CDs lock your money away for a set period.
- Rates change weekly or monthly, so the highest rate today may drop or rise by next month—check current rates before moving money.
- Your deposits are protected up to $250,000 by federal insurance regardless of which type of account or institution you choose.
- Online banks and credit unions pay more because they have lower costs, not because they're riskier than traditional banks.
High-Yield Savings Accounts: The Most Flexible Option
A high-yield savings account works like a regular savings account—you can deposit and withdraw money whenever you want—but the bank pays you much more interest. As of early 2024, rates range from about 4% to 5.35% depending on the bank and the exact day you check. Some of the institutions offering competitive rates include online banks like Marcus, Ally, American Express Personal Savings, and Wealthfront, as well as credit unions and some regional banks.
The main advantage is flexibility. You're not locked in. If you need the money, you can move it out. If rates drop at your current bank, you can move to a different one. The downside is that rates can fall just as easily as they rise—when the Federal Reserve cuts interest rates, banks follow within weeks or months.
Most high-yield savings accounts have no monthly fees, no minimum balance requirement, and no limit on how much you can deposit. Some banks limit how many times you can withdraw per month, though that rule is less common now than it used to be. Read the terms before you open an account.
Money Market Accounts: Higher Rates With Checkwriting
A money market account is a hybrid between a savings account and a checking account. It typically pays interest rates similar to high-yield savings accounts—currently 4% to 5.3%—and it often comes with a debit card or checkbook so you can access your money more easily than with a savings account. Some money market accounts also pay interest on the balance you keep in them.
The trade-off is that money market accounts often have higher minimum balance requirements than savings accounts, sometimes $2,500 or more. They may also limit the number of withdrawals or transfers you can make per month, though federal rules on this have loosened. If you exceed the withdrawal limit, the bank may charge a fee or convert the account to a checking account.
Money market accounts are worth considering if you want to earn high interest but also need regular access to your money for bills or emergencies. Compare the rate, the minimum balance, and the withdrawal rules before you open one.
Certificates of Deposit: Locked-In Rates for Longer Terms
A certificate of deposit (CD) is an account where you agree to leave your money untouched for a set period—typically three months, six months, one year, three years, or five years. In return, the bank locks in an interest rate for that entire period. Current CD rates range from about 4.5% to 5.5% depending on the term length and the bank.
The advantage is certainty. Once you buy a CD, the rate does not change, even if the Federal Reserve cuts rates and all other accounts drop. A five-year CD bought today at 5.3% will still pay 5.3% five years from now, even if rates fall to 1%.
The disadvantage is that your money is locked away. If you withdraw before the term ends, you pay an early withdrawal penalty, which is usually three to six months of interest. If you buy a one-year CD at 5% and withdraw after six months, you might lose $25 in interest. On a five-year CD, the penalty is steeper. Only put money in a CD if you're confident you won't need it before the term ends.
CDs are useful for money you know you won't touch—a down payment you're saving for in three years, or an emergency fund you want to protect from yourself. They're less useful for money you might need sooner.
How to Compare Rates Across Banks and Accounts
Interest rates change constantly, so the best way to find the highest rate is to check a rate-comparison website that updates daily or weekly. Bankrate, DepositAccounts, and MoneySavingExpert all list current rates from dozens of banks and credit unions. You can filter by account type, term length, and minimum balance to narrow down your options.
When you compare, look at the APY (annual percentage yield), not just the interest rate. APY includes the effect of compounding—how often the bank adds interest to your account—so it's the true number you'll earn. A bank advertising 5% APY will pay you more than one advertising 4.9% APY, all else equal.
Also check whether the rate is a promotional rate that expires after a few months, or a standard rate that stays in place. Some banks offer 5.3% for the first three months, then drop to 4.5%. Read the fine print before you move your money.
Once you've found a bank with a competitive rate, opening an account usually takes 10 to 15 minutes online. You'll need your Social Security number, a government ID, and a way to fund the account—either a transfer from another bank or a check deposit.
Why Big Banks Pay Less and When It Matters
Chase, Bank of America, Wells Fargo, and other large national banks typically pay 0.01% to 0.05% on savings accounts. They can afford to pay less because they have millions of customers with checking accounts, credit cards, and loans, so they don't need to compete aggressively for savings deposits. They also spend heavily on branches, advertising, and customer service, which costs money.
If you keep your money at a big bank, you're essentially paying for the convenience of walking into a branch or calling a local phone number. For most people, that convenience is not worth losing $400 to $500 per year in interest on $10,000. But if you need to deposit cash frequently or prefer in-person service, a big bank may still make sense for you.
Some large banks do offer high-yield savings accounts online. Bank of America, for example, has a high-yield savings option that pays more than its standard account. Check your current bank's website to see whether they offer a competitive rate before you switch.
Moving Money Between Banks Without Losing Interest
If you currently have money in a low-interest account and want to move it to a high-yield account, the process is straightforward and does not interrupt your interest earnings. Most banks let you transfer money electronically from another bank's account in one to three business days. You'll need the routing number and account number of the account you're transferring from.
Your interest accrues daily, so if you transfer money on a Tuesday, you'll earn interest from Tuesday through the end of the month at your old bank, and then interest starts accruing at your new bank the next day. You don't lose any interest by switching, though you may lose a few days if the transfer takes longer than expected.
Some banks offer a small bonus—$50 to $500—if you transfer a certain amount of money and keep it there for a set period. These bonuses are worth considering, but don't let a $100 bonus push you toward a bank with a lower interest rate. The interest you earn over time will be much more valuable.
Frequently Asked Questions
What's the difference between APR and APY?
APR is the annual percentage rate before compounding. APY is the annual percentage yield after compounding—the actual amount you'll earn. If a bank compounds interest monthly, the APY will be slightly higher than the APR. Always compare APY to APY, not APR to APY.
Can I lose money in a high-yield savings account?
No. Your principal is protected by FDIC or NCUA insurance up to $250,000. Interest rates can fall, so you might earn less next month than this month, but you won't lose the money you deposited. The only exception is if the bank fails, which is extremely rare and covered by insurance.
Should I put all my money in a CD to lock in today's rates?
Only if you won't need the money before the CD matures. If you withdraw early, you'll pay a penalty that can wipe out months of interest. Keep three to six months of expenses in a high-yield savings account for emergencies, and put longer-term savings in CDs if rates are attractive.
Do I have to pay taxes on the interest I earn?
Yes. Interest income is taxable as ordinary income. Your bank will send you a 1099-INT form at the end of the year if you earned $10 or more in interest. You'll report this on your tax return. The interest is taxed at your regular income tax rate, not at a lower capital gains rate.
What happens if the bank goes out of business?
Your deposits up to $250,000 are protected by the FDIC (for banks) or NCUA (for credit unions). If the bank fails, the insurance agency will transfer your money to another bank or send you a check. This has happened only a handful of times in recent decades, and depositors have always been made whole.