The best bank for your savings account depends on what you actually use it for

There is no single "best" bank because different banks serve different needs. A bank that works well for someone who wants to visit a physical branch and talk to a person will frustrate someone who never sets foot in a building. A bank offering high interest rates but charging monthly fees might cost you more than a bank with lower rates and no fees. The right choice depends on three things: how you plan to access your money, how much you have to deposit, and whether you want to earn interest or just keep cash safe.

Start by deciding whether you need a physical location you can walk into, or whether you are comfortable banking entirely online. Then look at the actual numbers — the interest rate they pay, the monthly fee (if any), and the minimum balance required to open the account. Compare these three numbers across two or three banks before you decide. The difference between a bank charging $12 a month and one charging nothing is $144 a year, which matters more than a 0.01% difference in interest rate.

Key Takeaways

  • Banks that operate only online typically offer higher interest rates and lower or no monthly fees because they have fewer physical locations to maintain.
  • Banks with physical branches near you charge higher fees but let you deposit cash in person and speak to someone if something goes wrong.
  • The interest rate a bank pays changes over time, so comparing rates today does not tell you what you will earn next year.
  • Monthly maintenance fees, minimum balance requirements, and how you access your money matter more to most people than a small difference in interest rate.
  • Credit unions often charge no monthly fees and pay competitive interest rates, but membership requirements and branch networks vary widely by location.

Online banks versus banks with physical branches

Online banks (also called internet banks) have no physical locations. You open an account on their website, deposit money by transferring it from another bank account, and access your savings through their app or website. Because they do not pay for buildings, staff, or ATM networks, they typically charge no monthly fee and pay higher interest rates than traditional banks. The trade-off is that you cannot walk in with cash or speak to someone face-to-face.

Banks with physical branches let you visit a location, deposit cash, and talk to an employee if you have questions or problems. They charge monthly maintenance fees (usually $5 to $15) to cover the cost of those branches and staff. Their interest rates are typically lower than online banks because they have higher operating costs. If you deposit cash regularly, live near a branch, or prefer to handle money in person, a traditional bank may be worth the monthly fee.

A middle option is a bank that has some physical branches but also offers online banking. These banks usually charge lower fees than full-service banks but higher fees than online-only banks, and their interest rates fall somewhere in between. If you want both options available, this type of bank might fit your needs.

Interest rates and how they change

The interest rate a bank pays on savings accounts varies by bank and changes over time. When the Federal Reserve raises interest rates, banks typically raise the rates they pay on savings accounts. When the Federal Reserve lowers rates, banks lower what they pay you. This means a bank offering 4.5% today might offer 3.0% in six months if the Fed cuts rates.

Online banks almost always pay more interest than traditional banks with branches. As of early 2024, online banks were paying around 4% to 5% on savings accounts, while traditional banks were paying closer to 0.01% to 0.5%. That difference adds up: on $10,000, the difference between 4.5% and 0.1% is roughly $440 per year. However, interest rates change frequently, so check the current rate before you open an account, not just the rate you see advertised.

Some banks offer higher interest rates only on the first few months, then drop the rate after that period ends. Read the terms carefully to see whether the rate is permanent or temporary. Also check whether the rate applies to your entire balance or only to money above a certain amount.

Monthly fees and minimum balance requirements

Many banks charge a monthly maintenance fee to keep a savings account open. This fee is usually $5 to $15 per month, though some banks waive it if you maintain a minimum balance (often $500 to $2,500) or set up direct deposit. Over a year, a $10 monthly fee costs $120 — more than most people earn in interest on a small savings account.

Online banks and credit unions typically charge no monthly fee at all. Traditional banks with branches almost always charge a fee unless you meet their minimum balance requirement. Before you open an account, find out whether there is a monthly fee, what the minimum balance is to avoid it, and whether you can meet that minimum comfortably. If you cannot maintain the minimum, the monthly fee will eat into any interest you earn.

Some banks also charge fees for other actions: transferring money out, making too many withdrawals, or falling below the minimum balance. Read the fee schedule on the bank's website before you open an account so you understand what costs you might face.

Credit unions as an alternative to banks

A credit union is a member-owned financial institution that works similarly to a bank but is structured differently. Credit unions typically charge no monthly maintenance fees, pay competitive interest rates, and offer lower fees overall than traditional banks. However, you must be a member to open an account, and membership requirements vary. Some credit unions are open to anyone who lives or works in a certain area. Others require you to work for a specific employer, belong to a specific organization, or have a family member who is already a member.

To find a credit union you can join, use the CO-OP Network search tool or ask your employer whether they sponsor a credit union. If you can join one, it is worth comparing their savings account terms to banks in your area. Credit unions often have lower fees and competitive interest rates, though their rates and terms vary more widely than banks because each credit union sets its own policies.

The main drawback of credit unions is that their branch and ATM networks are usually smaller than banks. If you need to access cash at many locations, check whether the credit union's network covers the areas where you live and work.

How to compare banks side by side

Create a simple table with the banks you are considering and list these numbers for each one: monthly maintenance fee, minimum balance to open, minimum balance to avoid fees, current interest rate, and whether you can access a physical branch near you. Calculate the annual cost of each bank by multiplying the monthly fee by 12, then subtract that from the interest you would earn on your typical balance. The bank with the lowest total cost is usually the best choice for you.

For example, if you plan to keep $5,000 in savings: Bank A charges $10 per month (costing $120 per year) and pays 0.5% interest (earning $25 per year), for a net cost of $95. Bank B charges no monthly fee and pays 4.5% interest (earning $225 per year), for a net gain of $225. Bank B is the better choice by $320 per year, even though the interest rate difference seems small.

Check the bank's website for current rates and fees, as these change frequently. Most banks display this information clearly on their savings account page. If you cannot find the information, call the bank or use their online chat to ask.

What happens if you switch banks later

Switching banks is straightforward and costs nothing. You can open a new account at a different bank while keeping your current account open. Once the new account is set up, transfer your money from the old account to the new one. You can close the old account once the transfer is complete. The entire process usually takes a few days to a week.

Some banks offer to help you switch by moving money from your old bank automatically. If your new bank offers this service, they will handle the transfer for you. If not, you can transfer money yourself through your online banking portal or by visiting a branch.

There is no penalty for switching banks, and switching does not affect your credit score. If you find a bank with better rates or lower fees after a few months, you can move your money without any problem.

Frequently Asked Questions

Do I need a minimum balance to open a savings account?

Most online banks let you open an account with $0 or $1. Traditional banks often require $100 to $500 to open an account. Credit unions vary widely. Check the specific bank's website to see what they require to open an account versus what you need to maintain to avoid monthly fees — these are often different numbers.

Can I have savings accounts at more than one bank?

Yes. You can open savings accounts at multiple banks and move money between them as needed. Some people keep accounts at an online bank for the interest rate and a traditional bank for easy cash access. There is no limit to how many accounts you can have.

What if the bank fails or goes out of business?

The Federal Deposit Insurance Corporation (FDIC) protects deposits at banks up to $250,000 per account holder per bank. Credit unions are protected by the National Credit Union Administration (NCUA) up to the same amount. As long as your balance is under $250,000 and the institution is FDIC or NCUA insured, your money is protected even if the bank fails.

Should I choose a bank based on interest rate alone?

No. A bank paying 4.5% interest but charging $15 per month in fees may cost you more than a bank paying 3.5% with no fees. Calculate the total cost (fees minus interest earned) rather than looking at the interest rate by itself. The lowest interest rate is not always the worst deal if the fees are low enough.

How often do banks change their interest rates?

Banks can change interest rates at any time, though they typically adjust them when the Federal Reserve changes its rates. Some banks change rates weekly or monthly. Check your bank's website or app regularly to see your current rate, or set up alerts if your bank offers them.