Saving money is an important way to ensure financial stability into the future, but it's not enough to keep your cash in a simple savings accounts. You could be earning significantly more by trading up to a high-yield account paying out more than 10 times the 0.36% national average of your everyday savings.
Today's most competitive APYs are offered by FDIC-insured online-only banks and digital accounts with no minimum deposits, high fees or other limitations that can eat into your earnings. And robust online banking and apps make it easy to link to your checking and savings at other banks to seamlessly move and manage your money.
With the Fed expected to cut rates soon, here's where to trade your simple savings for significantly higher savings potential today backed by the power of compounding with signup in minutes.
Today’s highest savings rates are at FDIC-insured digital banks and online accounts offering yields of up to 5.50% APY with a $1,000 minimum deposit at Poppy Bank and up to 5.30% APY with no minimums at Western Alliance, Jenius Bank, Bank Bank and other trusted providers as of Tuesday, July 16, 2024.
These digital accounts and online-only banks may not be familiar names, though each partners with an FDIC-insured bank to offer deposit accounts that are insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) — just like those at your neighborhood bank.
And while the Federal Reserve once limited transactions and withdrawals from high-yield savings accounts to six a month, that limitation is permanently suspended in the wake of the pandemic, with many banks no longer restricting how often you can move money in and out of your account.
Dig deeper: How to find and open a high-yield savings account in 5 steps
The Federal Deposit Insurance Corporation tracks monthly average interest rates paid on savings and other deposit accounts, like certificates of deposit, that offer insight into the interest you might receive at your local bank or on traditional accounts.
Here's how FDIC national deposit rates on a $10,000 minimum deposit compare between June and July 2024 on traditional low-interest deposit accounts.
Pulling back on rate changes over the past year reveals a drop on the rate for traditional savings accounts with increases on yields for CDs of 3, 6 and 36 months between August 2023 and July 2024.
The FDIC is an independent government agency charged with maintaining stability and public confidence in the U.S. financial system and providing insurance on consumer deposit accounts.
Dig deeper: How much money should you keep in an HYSA?
A savings account is a type of deposit account designed for storing money you don’t expect to use for regular expenses, like paying bills or buying groceries. These accounts don't typically offer check-writing privileges or debit cards, though you can find limited checking with a high-yield money market account.
Saving accounts earn you interest on your balance — anywhere from a modest 1% APY with a traditional account to a lucrative 5% APY and higher for high-yield accounts — compounding what you earn and helping your savings to grow faster.
Simple interest refers to the interest you earn on your principal balance only. Let's say you invest $10,000 into an account that pays 3% in simple interest. After three years, you’d have earned $900 in interest — $300 each year — for a total of $10,900 in your account.
Now let's say you invest $10,000 in an account that pays 3% compounded annually. At the end of the first year, you'd have earned $300 in interest, for a total of $10,300 in your account. If you left your account as is for another year, you’d have earned another $309 in interest — $300 on your initial deposit and another $9 on the interest reinvested from year one — for a new total of $10,609. Year three, you’d earn another $318.27 in interest — $300 on your initial deposit and another $18.27 on the interest you earned. At the end of the same three years, you'd have earned $927.27 in interest for a total of $10,927.27 in your account — and that's without additional contributions to that initial $10,000.
Savings accounts can compound daily, monthly or quarterly, depending on the bank and account. The more frequent the compounding, the more you can earn — so read your account's disclosure statements to understand how often your interest is compounded and credited to your account. Larger balances over longer periods can add up to even more significant savings.
There’s no official definition for either of these accounts. Rather, each is a type of deposit account that can earn you incremental interest on your balance, helping you to grow your savings. The money you save in these accounts is federally insured up to $250,000 by the FDIC or the NCUA for up to $250,000 per person, per account, protecting your nest egg against risk.
Your earning potential is the most important difference between an HYSA and a traditional savings account. A high-yield savings account can earn you significantly more interest than a traditional savings account, with digital banks and online accounts offering the strongest rates, passing along overhead savings in the form of high yields — more than 10 times the national average when compared to a traditional account. The best of these digital banks and online accounts come with no fees and no minimum deposits, removing any challenges to maintaining your account over the long term.
Dig deeper: High-yield savings vs. traditional savings account: Why it’s worth the switch
Digital banking opens up more competitive rates and fewer fees than your neighborhood brick-and-mortar bank, and robust apps make it easy to keep an eye on your balance, manage money among everyday accounts and deposit checks from your smartphone or tablet.
Yet while it's tempting to choose an account based only on its highest advertised APY, interest rates on savings accounts are variable — meaning rates can fluctuate after you open one and change over time. And you could be earning a lower rate if the Fed cuts its benchmark interest rate later this year.
Instead, look for an account that fits the way you like to bank, weighing factors that include:
Promotional rates. Today's high-yield accounts can earn 5% APY and higher. Yet some accounts advertise promotional or limited-time rates to entice you to sign up before adjusting to a lower rate based on market conditions.
Low or no minimums. The best savings accounts require no minimum deposit or balance to earn interest, though you might be required to open with a minimum deposit or maintain a specific monthly balance to avoid monthly maintenance or service fees.
Ease of accessing your money. Look for flexibility that includes ATMs and mobile apps that accept checks for deposit — or branch access, if you prefer in-person banking.
FDIC or NCUA protections. Savings accounts are federally insured for up to $250,000 per account, per person — which means your money is safe up to the limit.
Dig deeper: Can you lose money in a high-yield savings account? It's unlikely, but here's what to watch out for
A savings account can offer flexible access to your money, but it isn’t the only safe place to store your savings and earn interest on your balance. Look to these alternatives that offer steady returns at APYs that can outpace traditional accounts.
Certificate of deposit. A CD guarantees a high fixed rate of return on a principal deposit at the end of an agreed-on term. CDs differ from savings accounts in that you risk a withdrawal penalty if you need to access your money before the CD matures — though a short-term CD ladder can help you leverage high-rates with rolling returns while interest rates are strong.
Money market account. Also called a money market savings account, the rate on an MMA can beat those of traditional savings accounts, with the same access to your money.
High-yield checking account. A high-yield checking account is like a money market account in that it combines high APYs with checking benefits, but with unlimited debit and check-writing privileges you won't find with an HYSA or MMA.
Dig deeper: HYSA vs. money market account: Which high-APY account is best for your nest egg?
Savings rates strongly correlate with the target interest rate set by the Federal Reserve, the country’s central bank. This Fed rate is the benchmark that affects interest rates set for deposit accounts, loans, mortgages, credit cards and other financial products. As the Fed rate rises, so do APYs on savings accounts, CDs and money market accounts — with today’s rates on the best high-yield savings accounts topping 5% APY.
The Federal Reserve increased the target interest rate 11 times from March 2022 to July 2023 in an effort to combat the highest inflation in four decades coming out of the pandemic.
At the conclusion of its fourth rate-setting policy meeting of 2024 on June 12, 2024, the Federal Reserve kept the federal funds target interest rate steady at a 23-year high of 5.25% to 5.50%, marking the seventh consecutive time the Fed's held the benchmark rate unchanged since July 2023.
In its post-meeting statement, the Federal Reserve acknowledged "there has been modest further progress toward the Committee's 2 percent inflation objective," but also that the "economic outlook is uncertain, and the Committee remains highly attentive to inflation risks."
The Federal Reserve is focused on a 2% inflation goal that's ideal for keeping employment high and prices low. Despite speculation in March of three rate cuts by the end of the year, the Fed reiterated from its May statement that its rate-setting committee "does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent."
Officials now estimate one rate cut this year with an additional four cuts anticipated in 2025.
It's expected that the Federal Reserve will hold the Fed rate at 5.25% to 5.50% at its next policy meeting on July 30 and July 31, 2024. The CME FedWatch Tool, which measures market expectations for Fed fund rate changes, predicts a 91.2% chance that the Fed will keep rates where they are.
The latest jobs report released July 5 exceeded expectations, showing a 42nd consecutive month of job growth. Employers added 206,000 new jobs in June, returning the job market to pre-pandemic conditions and calling into question the odds of a September 2024 Fed rate cut.
Adding to the good news is data signaling a continued cooling of inflation, falling from a peak of 9.1% in June 2022 to rates that have ranged from 3% and 4% since May 2023. The consumer price index released on July 11 revealed consumer prices rose 3% year over year in June, down from 3.3% in May, slowing more than expected. Producer price index data released on July 12, however, reported a sharper increase in wholesale prices — or the prices manufacturers pay to producers of goods and services — than forecast for June. The index increased 2.6% for the 12 months ending in June, the largest year-over-year gain since March 2023, which could further influence an already cautious Fed to skip July for a rate cut in September or later in the year.
Speaking to Congress on July 9, Federal Reserve Chair Jerome Powell said the Fed's hold on benchmark interest rates at their highest in two decades has resulted in "considerable progress" toward lowering inflation, but echoed previous concerns at the timing of anticipated rate cuts. "Reducing policy restraint too late or too little could unduly weaken economic activity and employment," he said, while lowering rates too soon could "stall or even reverse the progress we've seen on inflation."
Powell reiterated this sentiment during an interview in Washington, D.C., on July 16, acknowledging the economy appears to be on the way to a "soft landing," but declining to commit to a rate cut for July: "We're going to make these decisions meeting by meeting."
The Powell-led rate-setting panel will announce a rate decision at the conclusion of its meeting on July 31 at 2 p.m. ET.
Dig deeper: When’s the next Federal Reserve meeting? The FOMC — and how it affects your finances
Annual percentage yield. Called the APY, this is the total amount of interest you'll earn on your deposit over one year, including compound interest, expressed as a percentage.
Member FDIC. When a bank or financial institution is advertised as a member of the FDIC, it means that your money is protected by the Federal Deposit Insurance Corporation. Funds held by member FDIC institutions are insured and federally protected for up to $250,000 per depositor, offering a layer of protection if the bank were to go out of business.
Maintenance or service fee. Some banks charge fees each month for simply holding your money, but many of the best high-yield savings accounts charge no monthly maintenance fees if you can meet account requirements.
Minimum deposit. As with monthly fees, some banks require you to deposit a minimum amount of money when opening your account as a way for them to profit from fees if required balances aren't met. The best high-yield savings accounts require no minimum balances to earn high rates of interest.
Variable APY. APYs can be fixed or variable, depending on the type of deposit account. Fixed rates don't fluctuate when, say, the Fed rate changes, while variable APYs do. Confirm the type of rate for the account you're interested in to understand whether the rate is fixed or variable.
Federal Reserve. The Federal Reserve — or Fed — is the central bank of the United States and the anchor of the financial system. Its Board of Governors is appointed by the president and confirmed by the Senate with the goals of maximizing employment, stabilizing prices and moderating long-term interest rates.
Learn more about how savings accounts work when narrowing down the best for your budget, lifestyle and financial goals.
High-yield savings accounts provide significantly higher earning potential when compared to traditional savings accounts that average 0.45% nationally, allowing your money to grow more substantially over time. They offer the convenience of online accessibility and minimal fees, giving you a secure and efficient way to manage your money.
Compound interest is often described as earning interest on your interest. It’s a powerful way to boost your savings over time by earning interest on both your initial deposit and any interest you earn along the way. An account's APY is the total amount of interest you'll earn on your deposit over one year, including compound interest, expressed as a percentage, with many HYSAs compounding daily or monthly.
Yes. Interest you earn on your savings account is considered taxable income by the IRS. If you earn more than $10 in interest in a calendar year, your bank or financial institution will send you a Form 1099 to file with your annual tax return.
There's no best type of interest rate — rather, the difference is that fixed rates stay the same over time while variable rates can change based on market conditions. In many cases, the choice between fixed and variable rates will be a choice between products. Learn more about the difference between fixed and variable rates, and the ways they affect how you borrow and save money.
Banks charge higher interest rates on money they lend out to borrowers than the interest they pay on customer deposit accounts. The difference is called a spread, and it’s what banks rely on to make money.
Online banks and digital accounts don't require the overhead of brick-and-mortar branches, allowing them to pass along savings to you in the form of even higher APYs than you might find in your neighborhood.
Yes. Neobanks are fintech — or financial technology — companies that partner with more recognizable FDIC-insured banks to offer deposit accounts protected by the government for up to $250,000. The FDIC insures the safety of your money, even if the neobank or fintech were to fail or go out of business. Look for terms like "member FDIC," "FDIC insured" or "NCUA insured" when comparing your options.
Editor's note: Annual percentage yields shown are as of Tuesday, July 16, 2024, at 8:10 a.m. ET. APYs and promotional rates for some products can vary by region and are subject to change.
Sources
Consumer Price Index Summary, U.S. Bureau of Labor and Statistics. Accessed July 12, 2024.
Producer Price Index News Release summary, U.S. Bureau of Labor and Statistics. Accessed July 15, 2024.
Employment Situation Summary, U.S. Bureau of Labor Statistics. Accessed July 8, 2024.
National Rates and Rate Caps, FDIC. Accessed July 16, 2024.
CME FedWatch Tool, CME Group. Accessed July 16, 2024.
