High-yield savings accounts currently pay the most interest

A high-yield savings account (HYSA) pays roughly 4 to 5 percent annual percentage yield (APY) as of early 2024, compared to 0.01 percent at many traditional banks. The difference matters: on $10,000, a traditional account earns about $1 per year, while a high-yield account earns $400 to $500. The trade-off is that high-yield accounts are almost always online-only banks with no physical branches, and they may have lower limits on how many withdrawals you can make per month.

The actual rate you receive depends on the bank, the size of your deposit, and how often the Federal Reserve changes its benchmark interest rate. Rates move together—when the Fed raises rates, banks raise their savings rates within weeks. When the Fed cuts rates, savings rates fall too. No bank can may provide a rate will stay the same forever.

Key Takeaways

  • High-yield savings accounts at online banks currently pay 4 to 5 percent APY, while traditional brick-and-mortar banks typically pay less than 0.1 percent.
  • The rate you receive changes when the Federal Reserve changes its benchmark rate, so the highest-paying account today may not be the highest next month.
  • Money market accounts and certificates of deposit (CDs) sometimes pay slightly more than savings accounts, but they come with different rules about access and withdrawal timing.
  • Your deposit is insured up to $250,000 per account type per bank by the FDIC, so a higher rate does not mean higher risk as long as you stay within that limit.

How to compare rates across banks

The APY is the only number that matters when comparing accounts—ignore the interest rate itself, because APY includes how often the bank compounds interest. A bank that compounds daily will show a higher APY than one that compounds monthly, even if the base rate is the same.

Check the rate on the bank's website, not in an advertisement. Promotional rates sometimes apply only to new customers or only to deposits above a certain amount. Read the fine print to see whether the rate you see is the standard rate or a limited-time offer. Sites like Bankrate and DepositAccounts list current rates across multiple banks and update them daily, so you can see the range without visiting each bank individually.

Also check the minimum deposit required to open the account and whether there are monthly fees. Some banks waive fees if you keep a certain balance; others charge $5 to $10 per month no matter what. A $5 monthly fee on a $1,000 account wipes out most of your interest earnings.

Money market accounts versus savings accounts

A money market account is a hybrid between a savings account and a checking account. It typically pays a rate similar to or slightly higher than a high-yield savings account, but it comes with a debit card and check-writing privileges. The catch is that federal rules limit you to six withdrawals per month (though this rule is enforced loosely now). If you need to access your money frequently, a regular savings account is simpler.

Money market accounts are also FDIC-insured up to $250,000, the same as savings accounts. The rate difference between a money market account and a high-yield savings account is usually less than 0.5 percent, so the choice often comes down to whether you want check-writing and a debit card.

Certificates of deposit (CDs) for higher rates

A certificate of deposit sometimes pays 0.5 to 1 percent more than a savings account, but you must lock your money away for a set period—typically three months to five years. If you withdraw before the term ends, you pay a penalty, usually equal to several months of interest. CDs make sense only if you know you will not need the money during the term.

The longer the term, the higher the rate. A one-year CD might pay 4.5 percent, while a five-year CD might pay 5.2 percent. However, if rates rise after you lock in your rate, you are stuck with the lower one. If rates fall, you benefit. This is the trade-off: you get a slightly higher rate in exchange for giving up the ability to move your money if better rates appear.

CDs are FDIC-insured up to $250,000, just like savings accounts. If you have more than $250,000 to save, you can open CDs at multiple banks to stay within the insurance limit at each one.

Why online banks pay more than traditional banks

Online banks have lower overhead costs—no building leases, no tellers, no branch staff. They pass those savings to customers by paying higher interest rates on deposits. A traditional bank with 500 branches nationwide cannot compete on rate with an online bank that has no physical locations.

This does not mean online banks are riskier. As long as the bank is FDIC-insured (check the FDIC's bank search tool to confirm), your deposits are protected the same way they are at a traditional bank. The FDIC insurance limit is $250,000 per account type per bank, so if you have more than that, spread it across multiple banks or account types.

What happens when the Federal Reserve changes rates

The Federal Reserve does not set savings account rates directly. Instead, it sets a benchmark rate that banks use to decide what to pay on deposits. When the Fed raises its benchmark rate, banks raise savings rates within days or weeks. When the Fed cuts rates, banks cut savings rates just as quickly.

This means the highest-paying account today may not be the highest-paying account in three months. If you lock money into a CD, you keep the same rate for the entire term, regardless of what the Fed does. If you keep money in a savings account, your rate will change as the Fed's benchmark changes.

Strategies for maximizing interest earnings

If you have a large amount to save and rates are high, consider splitting money between a high-yield savings account and a CD ladder. Put some money in a savings account for easy access, and divide the rest into CDs with different maturity dates—one maturing in one year, one in two years, one in three years. As each CD matures, you can renew it at the current rate or move the money to a savings account. This way, you capture higher CD rates while keeping some money accessible.

If you have less than $250,000, keep it all in a single high-yield savings account at one bank. The rate is nearly as high as a CD, and you keep full access to your money. Move your account if another bank's rate rises significantly—there is no penalty for switching savings accounts, and banks expect customers to shop around.

Frequently Asked Questions

Can I lose money in a high-yield savings account?

No. Your principal is protected by FDIC insurance up to $250,000. The interest rate can fall, but you will not lose the money you deposited. The only risk is that inflation rises faster than your interest rate, which means your money buys less over time—but that is true of any savings account.

Do I have to pay taxes on savings account interest?

Yes. Interest earned on a savings account is taxable income. The bank will send you a 1099-INT form at the end of the year if you earned $10 or more in interest. You report this on your tax return. High-yield accounts generate more interest, so they also generate a larger tax bill.

What if a bank fails?

Your deposits up to $250,000 per account type are protected by FDIC insurance. The FDIC will transfer your account 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.

Should I move my money if rates drop?

Only if the gap is significant—0.5 percent or more. Switching banks takes a few days, and you might miss a rate increase in the meantime. Small rate differences are not worth the hassle. Large differences are worth moving for.

Can I open multiple savings accounts at the same bank?

Yes, but the FDIC insurance limit applies to all savings accounts at one bank combined. If you open two savings accounts at the same bank and deposit $200,000 in each, only $250,000 total is insured. To protect more than $250,000, open accounts at different banks.