Interest rates vary by bank, account type, and how much money you deposit

There is no single bank with the "best" rates for everyone. The bank offering the highest rate on a savings account today might offer a lower rate on a money market account, or might require you to keep a minimum balance you cannot meet. Rates also change—sometimes weekly—so a bank that leads one month may not lead the next.

What matters is finding the rate that works for your specific situation: the account type you need, the amount you can deposit, and how long you plan to leave the money there. A high rate on a certificate of deposit (CD) does you no good if you need access to your cash in three months.

Key Takeaways

  • Interest rates differ by account type (savings, money market, CD), by bank, and by deposit size, so comparing one rate in isolation tells you nothing.
  • Online banks typically offer higher rates than brick-and-mortar banks because they have lower overhead costs, but they do not offer in-person service.
  • The annual percentage yield (APY) is the rate that matters—it includes compounding and is the number banks are required to display prominently.
  • Rates change frequently, so a rate you see today may be different by the time you open an account, and you should check current rates at the bank's website before deciding.
  • A slightly higher rate on a large deposit may not be worth it if the bank charges monthly fees that eat into your earnings.

Why online banks usually have higher rates than traditional banks

Online banks—institutions with no physical branches—typically offer higher interest rates because they spend less money on buildings, staff, and equipment. That savings gets passed to customers in the form of higher rates. Banks like Marcus, Ally, and American Express Personal Savings are online-only and often lead on savings account rates.

The trade-off is that you cannot walk into a branch to deposit cash or speak to someone face-to-face. Most online banks let you deposit checks by taking a photo with your phone, and they reimburse ATM fees, but if you need immediate in-person service, a traditional bank may be more practical even if the rate is lower.

How to read the rate a bank is advertising

Banks must display the annual percentage yield (APY) when they advertise a rate. The APY is the actual amount you will earn in a year, including the effect of compounding—when the bank pays interest on the interest you have already earned. This is the number to compare across banks, not the "interest rate" or "APR," which do not include compounding.

For example, a savings account might advertise an APY of 4.50%. That means if you deposit $10,000 and leave it untouched for a year, you will have $10,450 at the end (before taxes). The APY is always shown in the account's disclosure document, called the Truth in Savings Act disclosure, which the bank must give you before you open the account.

Comparing rates across different account types

Different account types earn different rates. A high-yield savings account typically earns more than a regular savings account. A money market account may earn more than a savings account but requires a higher minimum balance. A CD usually earns the most, but you cannot touch the money without paying a penalty.

When you are comparing banks, make sure you are comparing the same account type. Comparing a CD rate at one bank to a savings account rate at another will mislead you. Most banks list their current rates on their website under a heading like "Rates & APY" or "Current Rates." Write down the APY for the specific account type you want, then compare that number across banks.

What minimum deposit and balance requirements mean for your rate

Some banks offer a high rate only if you deposit a certain amount upfront, or only if you keep a minimum balance in the account. If the rate requires a $25,000 minimum deposit and you only have $5,000, that rate does not apply to you. Banks are required to disclose these conditions in the Truth in Savings Act disclosure, but they are easy to miss.

Before you decide on a bank based on its advertised rate, check whether that rate applies to the amount you actually plan to deposit. Some banks offer tiered rates—a lower rate on balances under $10,000 and a higher rate on balances above that—so your actual earnings depend on how much you deposit.

How fees can erase the benefit of a higher rate

A bank offering 4.75% APY sounds better than one offering 4.50%, but not if the first bank charges a $10 monthly maintenance fee and the second does not. On a $10,000 deposit, the higher rate earns you about $25 more per year than the lower rate. The monthly fee costs you $120 per year, leaving you $95 behind.

Before opening an account, look for fees listed in the Truth in Savings Act disclosure or the account's fee schedule. Common fees include monthly maintenance fees, fees for falling below a minimum balance, overdraft fees, and fees for closing the account early. Many online banks charge no monthly fees, which is one reason their rates can be higher.

Rates change, so check before you commit

Banks raise and lower rates in response to changes in the Federal Reserve's benchmark rate and to competition with other banks. A rate you see advertised today may be lower or higher by the time you open an account next week. This is normal and expected.

The best practice is to check the current rates at the banks you are considering on the day you plan to open the account. Most banks display rates prominently on their homepage or in a "Rates" section. If you are comparing more than two or three banks, write the rates down with the date you checked them, so you have a record of what you saw.

Frequently Asked Questions

Is a 0.25% higher rate worth switching banks?

It depends on how much money you have and how long you will keep it there. On $50,000, a 0.25% difference earns you about $125 more per year. If the new bank has no fees and the old bank does, switching makes sense. If both charge the same fees, the difference is small enough that convenience or customer service might matter more.

Why do CD rates change so much?

CD rates follow the Federal Reserve's benchmark rate, which changes several times per year. When the Fed raises rates, banks raise CD rates to attract deposits. When the Fed lowers rates, banks lower CD rates. A CD rate that is high today might be average in six months if the Fed cuts rates.

Can I move my money to a higher-rate bank without losing interest?

Yes. When you close an account, you receive all the interest you have earned up to that point. You can then deposit that money into a new account at a different bank. You do not lose any interest, but you may lose interest going forward if the new bank's rate is lower—so make sure the new rate is actually higher before you move.

Do I need to keep a certain amount in the account to earn the advertised rate?

Sometimes. Some banks offer the advertised rate only on balances above a certain amount, or only if you maintain a minimum balance. This information is in the Truth in Savings Act disclosure. If you cannot meet the minimum, ask the bank what rate you will earn on your actual deposit amount.

What if a bank's website shows different rates than what I see in an ad?

The rate on the bank's website is usually the current rate. Ads may be outdated or may advertise a promotional rate that is no longer available. Always check the bank's website directly before opening an account, and ask the bank to confirm the rate in writing before you deposit money.