Interest rates on savings accounts vary greatly, which means you need to shop around to find your best rate available. It’s possible to find rates reaching well past 2%, while the average savings account rate stands at around 0.27% (as of February 2020). This is why we check rates daily at more than 5,000 U.S. banks and credit unions, to make it easy for you to gain the best possible return on your savings.
A savings account is a key component of everyone’s financial life, but everybody needs something a little different from their savings account. That might mean you want to maximize your interest earnings, while others might need easy branch access. For that reason, we’ve outlined the best savings accounts in several different categories to better help you find the right one for your preferences.
So whether you’re shopping around for a new savings account or you need to open one for the first time, this comprehensive guide should help you get started. Below, you’ll find the best savings accounts to choose from, and a full brief on every aspect of selecting the right account for your needs.
Rates are accurate as of February 12, 2020
Best Savings Account Rates from Top Online Banks
Some people really put an emphasis on banking with a well-known, dependable bank that offers high rates and great features. For this reason, we’ve compiled a list of the big online banks that have had competitive rates for two consecutive years and either don’t require a minimum deposit amount or have a low minimum deposit amount requirement.
Best Rates from New Online Savings Accounts
Over the last year or so, there have been several new online banks being created by bigger banks or big banks introducing new online savings options. This list includes those banks that have either launched within the last two years or introduced a brand-new savings account with consistently high rates within the last two years.
Best High-Yield Savings Accounts
If the feature you care about the most is the rate a bank offers on a savings account, this list is for you. These banks are currently offering the highest savings account rates.
Best Savings Account Bonus Offers
Some banks offer cash bonuses to bring in new customers. There are often requirements that need to be met in order to qualify for these bonuses, so you’ll want to pay attention to those prior to applying. This list includes banks offer bonuses for opening a savings account.
Best Savings Account Rates from Credit Unions
Some people prefer to do their banking with credit unions because of the member benefits that extend beyond the deposit accounts. This list includes credit unions that currently offer the best savings account rates for low and high depositors.
What is a savings account?
A savings account is a type of deposit account where you can stash money for any length of time, long or short. Banks and credit unions reward you with an attractive return on your savings balance — thanks to the magic of compound interest, your savings can grow steadily over time. Keep in mind that unlike checking accounts, savings accounts aren’t designed to handle frequent transactions. Due to the Federal Reserve’s Regulation D which mandates certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle.
While they give customers a safe place to stash their money, savings accounts serve a different purpose for financial institutions. Banks and credit unions use their customers’ deposits to fund loans and other products. Banks charge borrowers interest on loans, which funds in part the interest you earn on your savings deposits. So when you open and fund a savings account, you’re helping your bank fund its business.
Is my money protected in a savings account?
The money you place into a savings account at a bank is generally protected by FDIC insurance, up to the legal limit. This limit applies per person, per bank, per ownership category.
For example, you would receive full FDIC coverage of a $250,000 deposit made to a savings account at ABC Bank, and you would get full FDIC insurance on $250,000 deposited in a savings account with XYZ bank.
If ABC Bank went under, you wouldn’t lose a dime of your deposit. The FDIC would either set you up with a new account at another FDIC-insured bank for the same amount as the closed account, or send you a check for the balance. However, if you had a $50,000 checking balance and a $250,000 savings account balance with ABC Bank, you would only receive $250,000 in total FDIC insurance for your accounts — with a potential loss of $50,000.
Credit unions rely on National Credit Union Administration (NCUA) insurance. The NCUA is an independent agency that maintains the National Credit Union Share Insurance Fund (NCUSIF), which funds deposit insurance payouts. All federal credit unions are insured by the NCUA. State-chartered credit unions are regulated by the state supervisory authority where the credit union’s main office is located, but they may also have NCUA insurance.
How should I use funds in my savings account ?
Money kept in a savings account is best left alone unless you absolutely need it. To maximize the return on your savings, stash most of your liquid cash flow in a savings account, and only keep the funds you need for day-to-day spending in your checking account. That allows your money to grow more efficiently — more money in a savings account means more interest earned and compounded.
Is it easy to move money in and out of a savings account?
How easy it is to move money in and out of your savings account depends on your financial institution. Typically, a transfer between deposit accounts goes through Automated Clearing House (ACH). ACH transfers should only take one to two business days to clear, often clearing immediately or within one business day. Some institutions, however, may take the full two days depending on their own rules and regulations.
Keep in mind that savings accounts have a limit of up to six certain transfers or withdrawals per month, thanks to the Federal Reserve’s Regulation D, or Reg D. This limit only applies to “convenient” transfers and withdrawals made by “preauthorized, automatic, telephonic agreement, order or instruction, or by check, debit card or similar order made by the depositor and payable to third parties.” Less convenient transactions are exempt from this regulation, including withdrawals or transfers made in person at the bank or ATM, by mail or over the phone.
Making more than six transactions per cycle will often result in an excessive transaction fee depending on the financial institution. Exceeding the limit several times can lead to the bank closing your account for good.
Do I need a savings account?
It’s safe to say that everyone should have a savings account. If your money is going to sit in a bank account, it might as well earn interest while it’s there. And if you’re going to earn interest, it’s surely best to find an account that earns the most interest possible — namely a high-yield savings account.
Even if you’re not interested in chasing the highest possible interest rate, you should still have a savings account to keep your money safe. Some people don’t trust banks and stash cash under their mattresses. But what happens if your house burns down or there’s a break-in? Stolen or lost funds are gone for good. Meanwhile, money in a savings account is kept safe by the FDIC, which even offers bank skeptics peace of mind. FDIC insurance means you’ll get your money back no matter what.
What should I consider when applying for a savings account?
If you’re not sure which account to choose, consider your savings priorities first. If you’re trying to reach a savings goal, a high-yield savings account will help you reach your goal faster than a lower-rate account.
Perhaps you want an account where you don’t have to worry about fees. There are several free savings accounts and accounts that don’t charge for excessive withdrawals that would be perfect for your needs.
Generally, though, these two features should be your top priorities when applying for a savings account. A high-yield savings account grows your money more efficiently, and not having fees taking out a chunk of those savings helps you keep it.
Is it better to have a savings account with a bank or a credit union?
If you’re looking at interest rates, there’s not much difference between the average savings accounts offered by banks and credit unions. In June 2019, the average savings account rate from brick-and-mortar banks earned just 0.28% APY, while credit unions had an average APY of 0.25%. But that doesn’t mean you won’t find competitive rates at banks or credit unions — it simply means you’ll need to shop around.
The same goes with fees. A 2018 MagnifyMoney survey of 57 rewards checking accounts from banks and credit unions indicated that credit unions tend to charge slightly higher fees than their traditional bank counterparts. However, credit unions are nonprofits, and tend to charge fairer fees than big banks do.
For many people, the choice of bank or credit union is a matter of personal preference. When you join a credit union, it means that you own a piece of the institution along with the other members. With a credit union there’s more transparency about how your deposits are being used — many people prefer to know that they are funding loans and helping other members, as opposed to paying big executive paychecks.
When it comes to physical access, banks usually have credit unions beat. Big banks have the money to spread their branches throughout the country, while credit unions tend to serve specific communities and locations. Still, credit unions very often partner with other credit unions and ATM networks to provide their members with widespread ATM access. Note that the CO-OP Financial Services credit union service organization has the second largest branch network in the United States.
Why should I open a high-yield savings account?
A high-yield savings account is an easy way to boost your savings without any extra effort on your part. Let’s say you have $5,000 in a 0.01% APY savings account, which is a typical rate from traditional, big banks. Assuming you don’t make any additional contributions, in a year, you’d earn a whopping 50 cents in interest. That’s a pretty poor rate.
Switching that $5,000 deposit over to a high-yield savings account that earns 2.00% APY would yield $100 and change in interest annually — that’s definitely a sight better than 50 cents. Additional recurring deposits, perhaps monthly, would increase your savings even more. Setting up automatic recurring deposits an easy way to turbocharge your savings.
What fees are typically associated with a savings account?
Many deposit accounts charge a monthly maintenance fee. The exact fee amount depends on the bank and specific account, but they can range anywhere between $5 to $15 a month. The good news is that there’s almost always a way to waive the fee. Typically this means maintaining a minimum monthly balance or making a certain number of transactions per month. You seldom have to worry about any monthly fees with online savings accounts.
Banks often charge for returned deposits, overdrafts, excessive transactions, expedited delivery or transfers, incoming and outgoing wire transfers, and paper statements. Avoid these things and skip the fees. If you’re worried about overdrafting your account, monitor your balance closely. There’s no need to pay $35 for overdrafting your account.
Are online savings accounts safe?
Many of the best savings accounts are available online. By operating only over the internet, banks are able to save on the cost of owning and maintaining physical branches. Banks pass those savings onto their customers in the form of the high rates you see above.
But just because they’re online doesn’t mean they’re any less secure than a well-known bricks-and-mortar bank. Reputable online banks offer FDIC insurance on your balances up to the legal limit. If you’re unsure, you can use the FDIC’s BankFind tool to double check a bank’s insurance status.
As for online security, most banks employ the same security features as the big banks, if not more. This includes network and browser encryption, firewalls, anti-virus scanning and anti-malware protection. Banks may also offer additional safety features like two-step authentication, automatic logout, fingerprint identification and proactive account monitoring. You can always check a bank’s exact safety features on its website, which applies to both online-only and brick-and-mortar banks.
Can I open more than one savings account?
You sure can. If you have a lot of cash on hand, opening multiple savings accounts can allow you to maximize your FDIC insurance. Think of the scenario mentioned above: Keep $250,000 in an ABC Bank savings account and $250,000 in an XYZ savings account. Dropping the total $500,000 in a single ABC Bank savings account would leave $250,000 uninsured.
Opening more than one savings account may also help you keep track of separate savings goals. For example, you can use one savings account to house your emergency fund which you never touch except for dire circumstances. Keeping it separate from your other accounts may make it easier for you to avoid dipping into your emergency backstop.
If you do have more than one savings account, just make sure they all earn at competitive rates.
How often do savings account rates change?
Unlike certificates of deposit, savings accounts have variable rates. This means that the bank can decrease or increase their rate at any point, often without notice. However, you can typically expect rate changes to happen on or right after the start of a month.
Deposit account rates often track the federal funds rate, which is set by the Federal Reserve. The federal funds rate establishes the rate banks and other financial institutions charge each other for lending. So when the federal funds rate is cut, banks tend to cut their own rates in response. This includes not only deposit rates, but loan rates as well. Conversely, banks boost their interest rates when the Fed raises the federal funds rate. Keep an eye on the Federal Reserve’s regular meetings to get a better sense of where the federal funds rate — and therefore your deposit rates — are headed.
Do I pay taxes on savings account interest?
If you earn $10 or more in interest in a year, then yes, your savings interest is taxable. Your bank or financial institution will send you a 1099-INT form documenting the interest you’ve earned. Using that form, you include your interest earnings with your annual tax filing. The bank will also send a copy of your 1099-INT form to the IRS.
Even if you don’t receive a 1099 from your bank, you’ll still need to report interest earned on your tax return. Plus, if you earned more than $1,500 in interest in a year, you’ll need to list out the sources of all that interest income on Schedule B of the 1040 Form.
Your earned interest is taxed according to your marginal tax bracket. If you earned $50 in interest and you’re in the 22% tax bracket, you’ll pay $12 in taxes on that interest earned.
What are the alternatives to a savings account?
Having a savings account is a crucial part of your financial life, but there are other types of deposit accounts that you can (and perhaps should) fit in.
Certificates of deposit
A certificate of deposit (CD) is a time deposit. Unlike savings accounts, which have no expiration date, CDs operate according to defined terms. Typically, CD terms range between three and 60 months, although some institutions offer terms beyond these parameters. Once you make your initial deposit, you have to wait for the term to expire — or mature — to access your funds and interest earnings.
CDs are a solid savings alternative for folks who have already maxed out their other savings accounts. They’re also good for longer-term savings goals. Opening a longer CD lets you lock in a high rate for the length of the term and not have to deal with the rate fluctuations that come with regular savings accounts.
CDs often require a minimum deposit to open, often ranging between $500 and $10,000. Any deposits larger than that are often considered “jumbo” CDs. However, there typically aren’t monthly fees to worry about with a CD.
Withdrawing money from a CD before maturity will result in an early withdrawal penalty. Remember how banks use savings accounts to fund their loans? The same is true here, except with CDs, you’re essentially making a promise to the bank that they can use those funds for a set amount of time.
For example, if you open a five-year CD, the bank expects to be able to use the funds for loans over a period of five years. If you withdraw that money after three years, the bank loses access to those assets and charge you a penalty. The penalty is often expressed as a portion of the interest earned. In this example, you might be charged 365 days’ worth of interest for making that early withdrawal. Some banks may offer “no-penalty” CDs, which tend to have shorter terms, that allow you to avoid the penalty.
Money market account
A money market account resembles a savings account more closely. It earns interest without an expiration date and limits your outgoing transactions to six per cycle. However, money market accounts can also include some checking account features like a debit card and the ability to write checks. This makes them a good alternative if you plan to dip into the account a bit more regularly, rather than using it only for emergencies.
Money market accounts tend to earn at higher interest rates than regular savings accounts. However, they also tend to require higher balances to open and then earn interest. Money markets often charge monthly fees, as well, even when they’re online.
Checking and savings accounts are the bread and butter of your financial life. While savings accounts are meant for stashing your money away, checking accounts are designed to help you move through the world, making payments, sending transfers, getting cash and more.
That doesn’t mean that your checking account can’t earn interest, too, however. Maximize your savings by opening a high-yield checking account to match your high-yield savings account. Checking accounts don’t earn at rates as high as savings accounts, but that way, all your money in all your accounts can be growing. For more efficiency, consider keeping the majority of your funds in your savings account for better growth — then you can transfer funds over to your checking account as needed.