High-yield savings accounts pay the most interest of any savings product right now

A high-yield savings account (HYSA) earns roughly 4 to 5 percent annual percentage yield (APY) as of early 2024, compared to 0.01 percent at most brick-and-mortar banks. The difference matters: on $10,000, a high-yield account earns $400 to $500 per year, while a traditional savings account earns $1. The tradeoff is that high-yield accounts are almost always online-only — you cannot walk into a branch — and they often have no physical debit card.

High-yield savings accounts are FDIC-insured up to $250,000, the same as any other bank savings account. Your money is safe. The reason the rates are higher is that online banks have lower overhead costs than branches do, and they pass some of that savings to depositors. The rates change frequently — sometimes weekly — and they move with the federal funds rate set by the Federal Reserve.

If you need the money to stay liquid (accessible without penalty), a high-yield savings account is the best choice. If you can lock money away for a set period, a certificate of deposit (CD) sometimes pays slightly more, but not always. Money market accounts fall between traditional savings and high-yield savings in both rate and accessibility.

Key Takeaways

  • High-yield savings accounts currently pay 4 to 5 percent APY, roughly 400 times more than traditional bank savings accounts.
  • The money stays liquid — you can withdraw it anytime without penalty — and it is FDIC-insured up to $250,000.
  • Rates change frequently and move with Federal Reserve decisions, so the best rate today may not be the best rate in three months.
  • Certificates of deposit sometimes pay slightly more than high-yield savings, but only if you lock the money away for three months to five years.
  • Money market accounts offer a middle ground between traditional savings and high-yield savings, with slightly higher rates and limited check-writing.

How high-yield savings accounts work

When you open a high-yield savings account, you deposit money and the bank pays you interest on that balance. The interest compounds daily or monthly, meaning you earn interest on your interest. Most high-yield accounts have no minimum balance requirement, no monthly fees, and no limit on how many times you can withdraw. You can add money or take it out whenever you want.

The account is held at an online bank or an online division of a traditional bank. You manage it through a website or app. You cannot deposit cash in person or get a debit card in most cases, though some high-yield accounts now offer debit cards or allow transfers to external accounts for cash withdrawal. Transfers between your high-yield account and a checking account at another bank usually take one to three business days.

Interest rates are not locked in. The bank can raise or lower the APY at any time, though in practice they tend to move rates in the same direction as the Federal Reserve. When the Fed raises rates, high-yield accounts usually follow within days or weeks. When the Fed cuts rates, high-yield accounts cut theirs too, though sometimes more slowly.

Certificates of deposit: higher rates if you lock money away

A certificate of deposit (CD) is a contract between you and the bank. You give the bank a sum of money for a fixed period — typically three months, six months, one year, three years, or five years — and the bank pays you a set interest rate for that entire period. The rate does not change. When the term ends, you get your principal back plus all the interest earned.

CD rates are often slightly higher than high-yield savings rates for the same bank, especially for longer terms. A one-year CD might pay 4.8 percent while the high-yield savings account pays 4.5 percent. A five-year CD might pay 5.0 percent or more. The longer you lock the money away, the higher the rate tends to be — though this is not always true, and it depends on what the Federal Reserve is expected to do.

The catch is that if you withdraw the money before the term ends, you pay a early withdrawal penalty. The penalty varies by bank and by term length — it might be three months of interest, six months of interest, or a flat fee. On a small CD, the penalty can wipe out most or all of the interest you earned. Read the fine print before you open a CD, because the penalty terms are not standardized.

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

Money market accounts: a middle ground

A money market account is a hybrid between a savings account and a checking account. It typically pays interest higher than a traditional savings account but lower than a high-yield savings account — usually 3 to 4.5 percent APY. In exchange, it often comes with a debit card and check-writing privileges, though some banks limit how many checks you can write per month.

Money market accounts are FDIC-insured and have no lock-in period. You can withdraw money anytime without penalty. Some banks require a higher minimum balance to open one or to earn the advertised rate, so check the terms before you sign up.

Money market accounts make sense if you want slightly better rates than a traditional savings account but also want the ability to write checks or use a debit card. If you are choosing purely for interest rate, a high-yield savings account pays more.

Why rates vary between banks and over time

High-yield savings rates and CD rates move together because they both respond to the federal funds rate — the interest rate the Federal Reserve sets for banks to lend to each other overnight. When the Fed raises this rate, banks can charge borrowers more, so they can afford to pay savers more. When the Fed cuts the rate, banks cut what they pay savers.

But banks do not all move at the same speed or to the same degree. An online bank with very low costs might pay 5.0 percent while a traditional bank pays 4.2 percent for the same product. This gap can persist for months. Shopping around matters — the difference between the highest and lowest rates available can mean hundreds of dollars per year on a large balance.

Rates also change based on what banks expect the Fed to do next. If traders think the Fed will cut rates soon, banks might lower their rates ahead of time. If traders think the Fed will hold steady, banks might hold their rates steady too. This is why the best rate today might not be the best rate in three months.

How to find the highest rates right now

Rate comparison websites like Bankrate, DepositAccounts, and NerdWallet list current rates at hundreds of banks and update them daily. You can filter by account type (high-yield savings, CD, money market), term length (for CDs), and minimum balance. These sites do not charge you — they make money from banks that pay for referrals.

When you find a rate you like, visit the bank's website directly to open the account. Most high-yield savings accounts can be opened entirely online in 10 to 15 minutes. You will need your Social Security number, a government ID, and proof of address. Funding the account usually takes one to three business days after you link an external bank account.

For CDs, pay close attention to the early withdrawal penalty before you commit. A high rate does not matter if you might need the money and the penalty will erase your gains. Also check whether the bank offers a CD ladder strategy — opening multiple CDs with different maturity dates so that some money becomes available each year without penalty.

Taxes on savings account interest

Interest earned in a savings account, high-yield account, or CD is taxable income. The bank will send you a Form 1099-INT at the end of the year if you earned $10 or more in interest. You report this on your tax return as ordinary income, taxed at your regular income tax rate.

This is why the real return on a savings account is lower than the APY advertised. If you earn $500 in interest and you are in the 24 percent tax bracket, you owe $120 in federal income tax on that interest, leaving you with $380 in actual gain. State income tax may apply too, depending on where you live.

If you have a very large balance, consider whether a tax-advantaged account like a Roth IRA or a 529 education savings plan might work better for your situation. These accounts have contribution limits and rules about when you can withdraw, but interest earned inside them is not taxed annually.

Frequently Asked Questions

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

No. Your principal is FDIC-insured up to $250,000, and interest rates can only go down, not negative. You will never owe money to the bank. The only risk is that inflation outpaces your interest rate, meaning your money loses purchasing power — but that is true of any savings account.

What happens to my money if the bank fails?

The FDIC takes over and pays you up to $250,000 from the insurance fund. This has happened dozens of times in U.S. history, and depositors have always been paid in full up to the limit. If you have more than $250,000, spread it across multiple banks to stay within the insurance limit at each one.

Should I put all my money in a CD if rates are high?

Only if you are certain you will not need the money before the term ends. If you might need it, the early withdrawal penalty could cost you more than the extra interest you earn. A high-yield savings account lets you access the money anytime without penalty, which is worth something even if the rate is slightly lower.

Do I need a minimum balance to open a high-yield savings account?

Most high-yield accounts have no minimum balance requirement. Some require $1 to open and $0 to maintain. A few require $500 or $1,000 to earn the advertised rate, so read the terms before you open. Traditional banks and money market accounts are more likely to have minimum balance requirements.

How often does interest compound?

Most high-yield savings accounts compound interest daily, meaning you earn interest on your interest every single day. Some compound monthly. Daily compounding is better because your money grows slightly faster, but the difference is small on most balances. The APY figure already accounts for compounding, so you do not need to calculate it yourself.