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Building your savings takes hard work, but a savings account with a great interest rate can help you meet your goals more easily and keep your money safe.
And doing your research pays off — the current national average savings rate is 0.05%, but you can earn 10 times that by choosing a high-yield savings account with an online bank.
Variable interest rates for savings accounts do fluctuate over time; they are set by banks but dependent upon the federal funds rate, which is determined by the Federal Reserve. The federal funds rate currently sits near zero in response to the economic crisis caused by the COVID-19 pandemic, and banks have begun to reduce savings interest rates alongside it.
That’s why it’s more important than ever to begin saving and why a high-yield savings account may be the perfect vehicle to do so. Use it to reach specific savings goals, like a home down payment or a vacation — or as an emergency fund you can dip into when you have an unexpected expense or a disruption in your income.
Here’s a rundown of some of the best savings rates on the market today, plus a few details you should know before choosing an online savings account.
Best Savings Account Rates
|Live Oak Bank||0.60%|
|American Express National Bank||0.50%|
|Goldman Sachs Bank USA||0.50%|
This list does not represent the entire market. To rank the high-yield savings accounts you’re most likely to be considering, we began by analyzing 32 of the most commonly reviewed and searched-for high-yield savings accounts, as well as the top 25 commercial U.S. banks.
Then, we eliminated any accounts that charge a monthly maintenance fee or require a minimum opening deposit of more than $10. With so many banks offering good APYs on high-yield online savings accounts, we think most people can and should stick to banks that don’t charge monthly service fees.
We eliminated any banks offering rates of less than 0.60%, a reasonable benchmark given current low interest rates. However, high-yield savings accounts offered by the biggest 25 commercial banks remain on the list, even if their rate falls below 0.60%. Due to their size and physical branch networks, these institutions can provide additional accessibility and familiarity, which makes a difference for some customers.
Finally, we made sure all of the institutions offering these accounts are FDIC insured, which gives greater security to your funds in the unlikely event of a bank failure.
The APYs shown above are as of January 20, 2020. They are the APYs available for the smallest balance and/or opening deposit possible. The NextAdvisor editorial team updates this information regularly, though it is possible APYs have changed since they were last updated. Also, some APYs may vary based on where you live.
How to Find the Best Online Savings Account
Finding a competitive interest rate and terms that agree with your financial plan are important aspects of choosing a savings account. But there are a few more important details you should confirm about any new savings account you’re considering:
First, always make sure your account is insured by the FDIC or NCUA and your savings total complies with insurance limits and guidelines set by those organizations (any amount up to $250,000 should be protected).
Also familiarize yourself with any monthly maintenance fees that may eat away at your interest earnings. Do your research into the fine print of your account’s terms so you can do your best to avoid fees as much as possible.
Finally, look into other benefits that may help you get the most out of your account, such as new account bonuses, ease of withdrawals and transfers, balance requirements, and of course APY.
Online Savings Account Terminology You Should Know
- Annual percentage yield (APY): The amount of interest your account earns over the course of a year. This percentage is calculated using the account’s interest rate and how often interest compounds annually.
- Compound interest: The amount you can earn on both your principal, or the money you put directly into your account, and on interest as it accumulates. As you earn interest, it’s added to your principal and itself earns interest the next time interest accrues. Many savings accounts compound interest monthly.
- Minimum required deposit: Some banks require a minimum deposit to open an account. There may be a time limit in which to deposit, so make sure you have the minimum up front before opening your account.
- Minimum required balance: Some banks may also set a minimum threshold at which your account balance must remain. If you fall below this minimum, you may be charged a fee or take on a lower interest rate.
How Online Savings Accounts Work
Savings accounts are secure accounts in which you can store your money. They may be offered by large, brick-and-mortar institutions or smaller online banks.
Savings accounts usually offer some amount of interest earned on your balance, so your money can grow over time, and they’re also relatively liquid, meaning you can move money in and out easily.
Because they don’t have physical locations and other costly expenses, you’ll generally find the best interest rates with online banks. But you’re less likely to have access to an in-person branch or representative.
Unlike checking accounts, you shouldn’t rely on your savings account to make regular transactions. Savings accounts generally limit withdrawals and transfer out of the account to no more than six per month.
In addition to making these transfers online, many banks offer ATM access for savings account withdrawals. Money market accounts, which are a type of savings account, usually even offer check-writing abilities or debit card access.
Other High-Yield Savings Options
In addition to high-yield savings accounts, two comparable high-yield savings options include money market accounts and CDs.
Money market accounts can offer even more liquidity than savings accounts, since they typically come with check-writing or debit card access for withdrawals. In years past, when interest rates were higher overall, a major perk of opening a money market account was the opportunity to earn a more competitive yield than savings accounts offered. Today, though, the difference in APY between money market accounts and high-yield savings is marginal. Money market accounts often have higher minimum balance requirements and can charge higher fees, which limits the pool of savers who they make sense for.
Certificates of deposit, or CDs, are generally not as liquid as a high-yield savings account, but they can offer higher interest rates. To open a CD, you must agree to deposit a principal sum into the account at a fixed rate for a fixed term (six months, one year, five years, etc.). When that term reaches maturity, you’ll receive both your principal and the interest earned. But if you withdraw your money before maturity, you’ll face an early withdrawal penalty.
Historically, CDs offered the best interest rates among high-yield deposit accounts: in exchange for locking up your money with the bank, you earned more over time. But as rates have fallen, and especially following the Fed’s rate cut in response to the coronavirus pandemic, APYs for both short- and even long-term CDs now look similar to those offered by both money market and high-yield savings accounts.
When Should You Use an Online Savings Account?
Online high-yield savings accounts are great outlets to store any cash you don’t need immediate access to (keep that in your checking account) and aren’t investing for the long-term (stow that in a retirement fund or brokerage account).
Because high-yield savings accounts are highly liquid, they’re suitable for a range of savings needs. You may even choose to open multiple accounts for different purposes.
A high-yield savings account can hold everything from your emergency savings fund to the money you’re putting aside for a future down payment. You can open a savings account to make contributions toward next year’s vacation or a big-ticket item you’ve had your eye on. It can even be a space to stash any extra cash you’d like to keep safe and earn a few dollars on in interest.
Previously, CDs or money market accounts may have been better options for longer-term, non-retirement savings because of higher interest potential, but in the current low rate environment, high-yield savings offer similar if not better APYs. For most savers today, a flexible, secure, high-interest online savings account is likely the best option for the majority of your savings needs.
How much money should you keep in your savings account?
Only you can properly judge the amount you feel most secure having stashed away in savings.
When it comes to emergency funds, experts typically recommend keeping three to six months worth of expenses in an accessible, interest-earning account. However, given the current recession and financial uncertainty workers are facing, many experts have tweaked their recommendations—now, you’ll find advice ranging 6 months, 8 months, 12 months, and even more than one year’s worth of expenses.
Your emergency savings should be reserved for times of financial hardship, such as job loss or furlough, or unexpected expenses that occasionally arise—such as medical bills and home repairs. Look back at your expense history over the past several months and consider how secure you feel in your current financial situation to help you determine the savings total that makes most sense for you.
Pros and Cons of Online Savings
Online high-yield savings accounts are often chosen by experts as the best place to keep your savings—and for good reason.
These accounts are highly liquid, meaning you can withdraw your cash whenever you need to. They offer competitive interest rates on your principal, which you can contribute to each month or pay period to increase your savings even further. Opening a savings account with an FDIC-insured institution insures up to $250,000 of your cash in the account, so there’s no risk even if the bank were to fold. And because they often offer low or no minimum deposits, account balance requirements, or monthly maintenance fees, high-yield savings can be more easily accessible for many savers than other account types.
There are potential drawbacks to contributing your savings to a high-yield online account, though.
While high-yield savings accounts offer some of the most competitive rates today, you can expect to find higher interest rate offers for longer-term savings through a CD or money market account when rates begin to rise in the future. You should also be careful when making withdrawals, which are limited to six per month (that limit has been temporarily suspended by the Fed in response to the coronavirus pandemic); you could incur a penalty for going over that amount.
And be sure to read the fine print of your account agreement carefully: while many high-yield savings accounts offer no fees or balance requirements, some do require a certain minimum balance to earn the advertised APY.
How Savings Account Interest Rates Change Over Time
Savings rates are closely tied to the federal funds rate set by the Federal Reserve, but individual banks decide for themselves when to make changes to their variable interest rates. That means the rate at which you open your account is not the guaranteed amount you’ll earn over time.
Currently, interest rates are declining, but you shouldn’t necessarily anticipate your APY changing weekly or even monthly. Savings account rates generally remain steady for a few months at a time.
Rarely, changes may occur more rapidly, such as following the Fed’s emergency decision to lower rates to near zero at the start of the COVID-19 pandemic in March 2020.
Many banks also make changes to their interest rates around the same time, so if you have multiple accounts and one makes an interest rate change, don’t be surprised if another follows suit soon after.
TAB Bank, or Transportation Alliance Bank, formed in Utah in 1998. The bank began in service to truck drivers, and operated primarily inside truck stops before expanding to offer a number of personal banking products for clients outside the industry, including savings, checking, money market accounts, and CDs. You can use the bank’s mobile platform and online reporting tools to track your earnings and activity.
Varo is a digital, mobile-only bank started in 2015 that offers both checking and savings accounts, along with debit card access. It has no physical bank branches, and consistently has high interest rates for savers. Varo also offers ways to earn higher APY based on certain purchasing and deposit behavior. You will have to be comfortable with banking on your phone, but you can easily access your money through transfers to other bank accounts and nationwide ATM access.
Prime Alliance Bank
Prime Alliance Bank began in 2004. It’s based in Utah but open to online consumers nationwide, and its full-service deposit account offerings include checking, savings, money market accounts, and CDs. Prime Alliance has one branch in Utah, but personal savings account customers are served via online or mobile banking.
Live Oak Bank
Live Oak Bank is an online bank founded in 2008 and based in Wilmington, North Carolina. It offers both high-yield savings and CD accounts, but no checking option or ATM access. Live Oak’s product offerings are minimal for personal banking, but they do consistently offer rates in line with the top APYs on the market. You can even view your external bank accounts in the Live Oak app, which can simplify your day-to-day banking.
American Express National Bank
American Express’ consumer banking branch offers high-yield online savings and CD options with good rates for savers. Though it doesn’t offer ATM access, you can easily link multiple accounts with different banks to your American Express savings for transfers. American Express has no mobile app to access your online banking account information; the American Express mobile app features are for credit cardholders only.
Synchrony is an online bank that offers a range of savings products: high-yield savings, money market accounts, and CDs, all at competitive yields. Synchrony is online-only, and you can access your Synchrony account information via mobile app or online. Synchrony doesn’t include a checking account among its deposit products, so you’ll need to ensure you have an outside account for transfers.
One thing we like
Synchrony offers an optional ATM card for high-yield savings customers. There are no ATM fees for withdrawing your cash, and you can get reimbursed for any ATM fees from other institutions up to $5 per statement cycle.
Ally Bank is one of the most popular online banking options on the market, with products ranging from checking, savings, money market accounts, CDs, and more. If you’re comfortable with online-only banking, Ally’s portfolio of products could suit all your banking needs and help you earn some of the best available interest. Just keep in mind that you won’t be able to deposit cash since the bank has no physical branches.
One thing we like
Ally has a robust online and mobile app experience, so you can organize and maximize your savings as well as make transfers and access account information easily.
Discover may be best-known for its credit card business, but the bank’s online banking options are plentiful and offer competitive rates—its products include checking, savings, money market accounts, and CDs. You can access your account information via mobile app or online, and see all your accounts with Discover in one place. Discover Bank is a great option for someone who prefers all their accounts in one place.=
Marcus by Goldman Sachs
Marcus is the online consumer banking division of Goldman Sachs, and frequently qualifies among the top interest offers for its high-yield savings and CD products. Marcus also offers personal loans. Marcus introduced a mobile app in 2020 which has standard features such as viewing account activity and making transfers, and also offers a tool to visualize your savings over time. Marcus doesn’t currently offer a checking option, but it can complete same-day transfers of less than $100,000 to other banks.
HSBC Direct is global bank HSBC’s online banking option, and has checking accounts, savings, and CDs among its product offerings. While it doesn’t offer ATM or debit card access for direct savings, HSBC Direct online banking customers have the option to make deposits and withdrawals at HSBC Bank locations. Be careful if you already bank with HSBC Bank; your online savings deposit at account opening must be made with “new money,” meaning you cannot transfer your balance from another HSBC account.
Capital One’s online banking division builds upon its credit card offerings with CDs, checking, and savings accounts, including the 360 Performance Savings. Along with its full product suite, Capital One has branch locations throughout the U.S. in addition to its Capital One Cafés.
One thing we like
If you’re not quite ready to commit to an online-only bank, Capital One’s Performance 360 account may be a good way to venture into online banking.