The highest rates are at online banks, not your local branch
The savings accounts offering the highest interest rates are almost always at online banks—institutions with no physical branches. Banks like Marcus, Ally, American Express Personal Savings, and Discover have no buildings to maintain, so they pass the savings to you as higher rates on deposits. A rate that is 4% or 5% at an online bank might be 0.01% at a traditional bank down the street.
The catch is that you cannot walk in and deposit cash or speak to someone face-to-face. Everything happens through a website or mobile app. For most people saving money, this is not a problem—you transfer funds electronically from another account, and you can withdraw the same way. If you need to deposit physical cash regularly, an online bank is not the right fit.
Rates change constantly. The Federal Reserve sets a target range for interest rates, and banks adjust what they pay depositors in response. A rate that is highest today may not be highest next month. Before you open an account, check the current rate on the bank's website—not an article or comparison site, which may be outdated by the time you read it.
Key Takeaways
- Online banks consistently offer higher savings rates than traditional banks because they have lower operating costs.
- The actual highest rate changes weekly or monthly as banks respond to Federal Reserve decisions, so you should check current rates directly on each bank's website.
- High-yield savings accounts at online banks are FDIC-insured up to $250,000, the same protection as any other bank account.
- You cannot deposit cash at most online banks, so if you regularly need to deposit physical money, a traditional bank or credit union may work better for you.
How to compare rates across banks
Start by visiting the websites of online banks directly. Look for the savings account or high-yield savings account product page. The interest rate should be displayed prominently—usually near the top of the page or in a comparison table. Write down the rate and the date you checked it, because rates move frequently.
Check at least three to five banks before deciding. Common options include Marcus, Ally, American Express Personal Savings, Discover, and LendingClub. Each publishes its rate on its own site. Do not rely on a third-party comparison site as your only source, because those sites update on different schedules and may show outdated information.
Pay attention to whether the rate applies to all balances or only balances above a certain amount. Some banks offer one rate on balances under $100,000 and a different rate above that threshold. Read the account terms to see if there are any conditions—for example, some banks lower the rate if you do not make deposits for a certain period, though this is uncommon.
Why rates vary between banks
Banks set their own rates based on how much they need to attract deposits. A bank that is growing quickly and needs more customer money may offer a higher rate to draw deposits in. A bank that already has plenty of deposits may lower its rate because it does not need to compete as hard.
The Federal Reserve's interest rate decisions affect all banks, but they do not set the exact rate each bank pays. When the Fed raises its target rate, banks typically raise what they pay depositors—but not always by the same amount. One bank might raise by 0.25%, while another raises by 0.10%. Over time, this means some banks consistently pay more than others.
Banks also consider how much it costs them to run the business. Online banks have lower costs because they do not maintain branches, so they can afford to pay more. A bank that offers in-person service, investment advice, or other perks may pay less on savings because those services cost money.
What to check before opening an account
Confirm that the bank is FDIC-insured. This means your deposits are protected up to $250,000 if the bank fails. Every major online bank is FDIC-insured, but it is worth verifying on the bank's website or by checking the FDIC's own bank search tool at fdic.gov.
Read the account terms for any fees. Most high-yield savings accounts have no monthly maintenance fee, but some charge a fee if you do not maintain a minimum balance or if you exceed a certain number of withdrawals per month. The terms should be on the account details page or in a document labeled "Account Agreement" or "Terms and Conditions."
Check how you transfer money in and out. Most online banks let you link an external bank account and transfer funds electronically, which takes one to three business days. Some also offer wire transfers, which are faster but may cost money. If you need to move money quickly, ask about wire transfer fees before you open the account.
How often rates change and what to expect
Savings rates can shift weekly, especially when the Federal Reserve meets to set its target rate. The Fed meets eight times per year on a scheduled calendar. When it raises or lowers rates, banks usually adjust what they pay depositors within a few days to a week.
Between Fed meetings, rates may stay the same or move slightly as banks compete for deposits. A bank might raise its rate by 0.05% to attract more customers, or lower it by 0.10% if it has enough deposits. These moves are smaller and less predictable than changes tied to Fed decisions.
If you lock in a rate today and rates drop next month, your rate does not change—you keep the rate you opened with. If rates rise, your rate stays the same unless the bank raises it. Banks are not required to raise rates when the Fed raises rates, though most do eventually.
Online banks versus credit unions and money market accounts
Credit unions sometimes offer competitive savings rates, though not always. Credit unions are member-owned and often have lower overhead than banks, which can mean higher rates. However, credit unions vary widely in size and resources. A large credit union might offer rates comparable to online banks, while a small one might offer much less. You have to check your local credit union's rate the same way you would check an online bank.
Money market accounts are a different product from savings accounts. They typically offer higher rates than regular savings accounts but may require a larger minimum balance and limit how often you can withdraw. If you are comparing rates, make sure you are looking at the same type of account—a high-yield savings account versus a money market account is not an apples-to-apples comparison.
Certificates of deposit (CDs) often pay more than savings accounts, but your money is locked up for a set period—usually three months to five years. If you need access to your money, a savings account is more practical, even if the rate is slightly lower.
What happens if you move your money to a higher-rate bank
You can open a new account at a different bank and transfer your money over. The process is straightforward: open the new account, link your old bank account, and request a transfer. Most banks can move the money within one to three business days.
There is no penalty for moving your savings to a different bank. Banks do not charge you for closing a savings account or transferring money out. Your old bank may ask why you are leaving, but you are not obligated to explain.
One thing to watch: if you have automatic deposits or bill payments linked to your old account, you will need to update those before you close the account. Otherwise, deposits may fail or bills may not get paid. Update any automatic transfers first, then move your savings, then close the old account once you are sure everything is working at the new bank.
Frequently Asked Questions
Can the interest rate on a savings account go down after I open it?
Yes. Banks can lower rates at any time, and they often do when the Federal Reserve lowers its target rate or when the bank has enough deposits. You will usually get notice before the rate drops, but you are not locked into the rate you opened with. If rates drop and you want a higher rate, you can move your money to a different bank.
Is my money safe at an online bank if I cannot see the building?
Yes, as long as the bank is FDIC-insured. FDIC insurance protects your deposits up to $250,000 regardless of whether the bank has branches. You can verify FDIC insurance on the bank's website or by searching the FDIC's bank database at fdic.gov. Online banks are regulated the same way as traditional banks.
How much money do I need to open a high-yield savings account?
Most online banks have no minimum opening deposit. You can open an account with $0 and deposit money later. Some banks offer a slightly higher rate if you maintain a larger balance, but this is not common. Check the specific bank's requirements on its website.
What if I need to deposit cash?
Most online banks do not accept cash deposits because they have no branches. If you need to deposit cash regularly, you have a few options: use a traditional bank or credit union that has branches, deposit cash at your current bank and then transfer the money electronically to your online savings account, or look for an online bank that partners with a network of ATMs or retail locations for deposits.
Do I have to pay taxes on the interest I earn?
Yes. Interest earned on a savings account is taxable income. The bank will send you a 1099-INT form at the end of the year if you earned $10 or more in interest. You report this on your tax return. This is true regardless of which bank you use or how high the rate is.