Interest rates vary by bank type, and online banks typically pay more than brick-and-mortar branches
The bank that gives you the most interest depends on where you look. Online banks and credit unions usually offer higher rates than traditional banks with physical branches, because they have lower overhead costs. A savings account at a major national bank might pay 0.01% annual percentage yield (APY), while an online bank might pay 4.5% to 5.3% APY on the same deposit. The difference compounds: on $10,000, that gap means $1 per year versus $450 to $530 per year.
Interest rates change constantly—sometimes weekly—so the bank offering the highest rate today may not be the highest next month. The Federal Reserve's decisions about interest rates affect what all banks can offer. When the Fed raises rates, banks raise their savings rates. When the Fed cuts rates, savings rates fall across the board.
Your job is not to find the single best bank forever, but to understand what types of banks pay more, what to look for when comparing, and how to move your money if a better rate appears.
Key Takeaways
- Online banks and credit unions typically pay 4% to 5.3% APY on savings accounts, while traditional banks often pay 0.01% to 0.05% APY.
- Interest rates change weekly or monthly, so the highest-paying bank today may not be the highest next month.
- You can compare current rates on sites like Bankrate, DepositAccounts, or the banks' own websites without signing up.
- Moving money between banks takes three to five business days, so switching to a higher rate is possible but not instant.
- FDIC insurance covers up to $250,000 per depositor per bank, so splitting money across multiple banks protects larger balances.
Why online banks and credit unions pay more interest
Online banks have no branch buildings, no tellers, and no regional staff. They pass those savings to depositors by paying higher interest rates. A bank like Marcus, Ally, or American Express Personal Savings has one website and a call center; a bank like Chase or Bank of America has thousands of branches and tens of thousands of employees. The cost difference is enormous.
Credit unions are member-owned cooperatives, not shareholder-owned corporations. They return profits to members through higher rates and lower fees. A credit union savings account often pays more than a traditional bank's account, though less than the top online banks. Credit unions also tend to have lower minimum balances and fewer restrictions.
Traditional banks with branches still exist because some people prefer walking into a physical location or talking to someone in person. That convenience costs money, and the bank recovers it by paying lower interest rates on savings.
How to compare rates across different banks
Do not rely on a single bank's website to know whether it offers the best rate. Use a rate-comparison site to see multiple banks side by side. Bankrate, DepositAccounts, and DepositAccounts.com all list current APY rates for savings accounts, money market accounts, and certificates of deposit (CDs) across dozens of banks. These sites update rates frequently—sometimes daily—so you see what banks are paying right now, not what they paid last month.
When you compare, look at the APY, not the interest rate. APY (annual percentage yield) includes the effect of compounding, so it is the true number. A bank might advertise "4.5% interest" but pay it monthly, which compounds to a higher APY. The APY is what matters for your money.
Also check the minimum balance required to earn the advertised rate. Some banks pay 5.0% APY only if you keep $25,000 or more in the account. If you have $5,000, that bank might pay you 0.5% APY instead. Read the fine print or call the bank to confirm what rate you would actually receive.
Online banks that currently pay competitive rates
As of early 2024, online banks offering rates in the 4.5% to 5.3% range include Marcus (by Goldman Sachs), Ally Bank, American Express Personal Savings, Wealthfront Cash Account, and Vanguard Cash Management. Rates change frequently, so check a comparison site before opening an account. Some of these banks also offer no monthly fees, no minimum balance, and FDIC insurance up to $250,000.
High-yield savings accounts (HYSAs) are the product name for these accounts. They are regular savings accounts—you can deposit and withdraw money anytime—but they pay much higher interest than traditional savings accounts. The trade-off is that you cannot write checks from them and you may have limits on how many withdrawals you can make per month (though most banks have removed this limit).
Credit unions also compete in this space. Navy Federal Credit Union, Connexus Credit Union, and others pay rates comparable to online banks, though you must be a member to open an account. Membership requirements vary—some are open to military families, some to employees of certain companies, some to people in certain geographic areas.
What happens when you move money to a higher-paying bank
Switching banks takes time but is straightforward. Open an account at the new bank (online, usually in 10 to 15 minutes). Then transfer money from your old bank to the new one. A domestic bank-to-bank transfer takes three to five business days. You can initiate the transfer from either the old bank or the new bank—most banks have a "transfer funds" or "link external account" option in their online portal.
Your old account does not close automatically. You can leave it open with a small balance (in case a forgotten subscription or payment still uses that account number), or close it after confirming all your regular deposits and payments have moved. Closing an account takes one phone call or a few clicks in the app.
You do not lose FDIC insurance during the transfer. Your money is insured from the moment you deposit it at the new bank. If the new bank fails during the transfer, the FDIC covers your balance up to $250,000.
FDIC insurance and splitting money across multiple banks
The FDIC insures deposits up to $250,000 per depositor per bank. If you have $500,000 in savings, you cannot put it all in one bank and keep it fully insured. You need to split it across at least two banks.
This matters if you have a large balance. Open a savings account at Bank A and deposit $250,000. Open a savings account at Bank B and deposit $250,000. Both are fully insured. If you put all $500,000 at Bank A, only $250,000 is insured; the other $250,000 is at risk if the bank fails.
You can have multiple accounts at the same bank—for example, a savings account and a money market account—but they count as one deposit for insurance purposes. To get separate insurance coverage, you need separate banks.
How interest rates change and what to expect
The Federal Reserve sets a target interest rate range, and banks adjust their savings rates in response. When the Fed raises rates, banks raise savings rates within weeks or months. When the Fed cuts rates, banks cut savings rates quickly—sometimes within days. This means the 5.3% you earn today might drop to 4.8% in six months if the Fed cuts rates.
You cannot predict when rates will change, but you can monitor them. Set a reminder to check rate-comparison sites every three months. If your bank's rate drops significantly below the market rate, you can move your money to a higher-paying bank. This is normal and expected—banks know depositors will leave if rates fall too far behind.
Some people keep money in multiple banks and move it to whichever is paying the highest rate at any given time. This requires more work but maximizes interest earned. Others pick a bank they trust and stay there even if the rate drops slightly, prioritizing simplicity over maximum returns.
Money market accounts and CDs as alternatives to savings accounts
A money market account is a hybrid between a savings account and a checking account. It usually pays interest similar to a high-yield savings account (4% to 5% APY), but it may come with a debit card and checks. Some money market accounts require a higher minimum balance than savings accounts. Rates and features vary by bank, so compare before opening.
A certificate of deposit (CD) is a different product. You deposit money for a fixed term—three months, six months, one year, five years—and the bank pays a set interest rate for that entire period. CDs often pay slightly more than savings accounts (for example, 5.4% APY for a one-year CD versus 5.0% for a savings account), but you cannot withdraw the money early without paying a penalty. CDs make sense if you know you will not need the money for a specific period.
For most people, a high-yield savings account at an online bank is the simplest choice: high interest, no lock-in period, FDIC insurance, and easy access to your money.
Frequently Asked Questions
Can I move my money to a new bank if the rate drops?
Yes. Bank-to-bank transfers take three to five business days, and you can initiate one anytime. There is no penalty for moving money out of a savings account. If your bank's rate falls below the market rate, moving to a higher-paying bank is a normal strategy.
What is the difference between APY and interest rate?
Interest rate is the percentage the bank pays per year. APY (annual percentage yield) is the interest rate plus the effect of compounding—how much you actually earn when interest is added to your balance and earns interest itself. APY is always equal to or higher than the interest rate, so always compare APY when choosing a bank.
Do I lose FDIC insurance if I move my money?
No. Your money is insured from the moment it arrives at the new bank. FDIC insurance covers up to $250,000 per depositor per bank, regardless of how many times you move money between banks.
What if I have more than $250,000 in savings?
Open accounts at multiple banks. Put $250,000 at Bank A and $250,000 at Bank B, and both are fully insured. You can also split money across different account types at the same bank (for example, a savings account and a money market account), but they count as one deposit for insurance purposes, so this does not increase your coverage.
How often do banks change their interest rates?
Rates can change weekly or monthly, depending on Federal Reserve decisions and bank competition. Check a rate-comparison site every few months to see if your bank is still competitive. If rates have dropped significantly, you can move your money to a higher-paying bank.