Online banks and credit unions typically offer the highest rates, but the leader changes month to month

The bank with the best rate today may not have it next week. Interest rates move constantly, and different institutions raise or lower theirs on different schedules. Right now, online banks and credit unions tend to pay more than brick-and-mortar banks, but you need to check the current rate at each place you're considering before you move money.

The highest rates are usually found in high-yield savings accounts and certificates of deposit (CDs). A high-yield savings account at an online bank might pay 4% to 5% annual percentage yield (APY), while a traditional bank's savings account might pay 0.01%. The difference compounds quickly: on $10,000, that gap means $400 to $500 per year versus $1 per year.

Credit unions often match or beat online bank rates because they are member-owned and return profits to account holders rather than to shareholders. You must be a member to open an account, but membership is sometimes free or costs a small annual fee.

Key Takeaways

  • Online banks and credit unions post higher rates than traditional banks because they have lower overhead costs and pass savings to depositors.
  • Rates change weekly or monthly, so comparing rates across three to five institutions before depositing is necessary to find the current best option.
  • High-yield savings accounts offer rates that change with the market, while CDs lock in a fixed rate for a set term, usually three months to five years.
  • The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 at each bank, and the National Credit Union Administration (NCUA) insures credit union deposits the same way, so safety does not depend on which institution you choose.

How to compare rates across institutions

Start by visiting the websites of at least three to five institutions and looking for the APY listed on their savings or CD product pages. Write down the rate, the account type, and the date you checked it. Rates posted on comparison websites like Bankrate, DepositAccounts, or the Federal Reserve's own rate tracker are usually updated daily, but they lag behind what institutions post on their own sites by a few hours.

Pay attention to the minimum deposit required to open the account and to earn the advertised rate. Some banks offer their highest rate only if you deposit $25,000 or more, while others have no minimum. If you have $5,000 to save, a bank requiring $25,000 minimum is not an option for you, even if its rate is highest.

Check whether the rate is may provide or variable. A CD rate is fixed for the term you choose—if you lock in 5% for one year, you earn 5% for that full year regardless of what happens to market rates. A high-yield savings account rate is variable, meaning the bank can lower it at any time. Banks usually lower rates when the Federal Reserve cuts its benchmark rate, which happens a few times per year.

Online banks versus credit unions

Online banks have no physical branches, which cuts their costs significantly. They pass those savings to depositors through higher rates. Examples include Marcus by Goldman Sachs, Ally Bank, and American Express Personal Savings. These institutions are FDIC-insured the same way traditional banks are, so your money is protected up to $250,000.

Credit unions are member-owned cooperatives. Because they don't answer to shareholders, they can offer competitive rates and lower fees. You must be a member to open an account. Membership requirements vary—some credit unions are open to anyone in a geographic area, while others require you to work for a specific employer or belong to a specific organization. The National Credit Union Administration (NCUA) insures credit union deposits up to $250,000, the same as FDIC insurance.

Both online banks and credit unions may offer lower fees than traditional banks. Some charge no monthly maintenance fee, no overdraft fee, and no fee to transfer money out. Read the fee schedule before opening an account.

CDs versus high-yield savings accounts

A CD locks your money away for a set period—typically three months, six months, one year, three years, or five years. In exchange, the bank pays you a higher rate than it pays on a savings account. If you withdraw the money before the term ends, you pay an early withdrawal penalty, usually equal to a few months of interest. A CD makes sense if you know you won't need the money for a specific period and want to lock in the current rate.

A high-yield savings account lets you withdraw money anytime without penalty. The rate is variable, so it can go down, but it can also go up if the Federal Reserve raises rates. A high-yield savings account is better if you might need the money within the next year or two, or if you want to keep your options open.

Some savers use a CD ladder: they buy multiple CDs with different maturity dates (one that matures in one year, one in two years, one in three years, and so on). As each CD matures, they can reinvest it at the current rate. This strategy lets you lock in rates while still having access to some of your money each year.

Traditional banks and why their rates are lower

Banks with physical branches—Chase, Bank of America, Wells Fargo, and others—typically pay 0.01% to 0.05% APY on savings accounts. They maintain thousands of branches and employ thousands of tellers, which is expensive. They also spend heavily on advertising and marketing. These costs are passed to customers through lower rates and higher fees.

A traditional bank makes sense if you need in-person service, want to deposit cash frequently, or value the convenience of a branch near your home or workplace. But if you save primarily by transferring money electronically and rarely need to visit a branch, an online bank or credit union will pay you significantly more interest on the same balance.

What affects rates and how often they change

The Federal Reserve sets a benchmark interest rate called the federal funds rate. Banks use this rate as a reference point when setting their own rates. When the Federal Reserve raises its rate, banks typically raise savings rates within days or weeks. When the Federal Reserve cuts its rate, banks usually cut savings rates more slowly, sometimes taking weeks or months.

Individual banks also adjust rates based on how much money they need to attract. If a bank has plenty of deposits, it may lower its rate to reduce costs. If it needs more deposits, it may raise its rate to attract new customers. This is why the highest-paying bank changes frequently.

Rates also vary by product. A one-year CD might pay 4.5% while a five-year CD pays 4.8%, or vice versa, depending on what the bank expects interest rates to do. Money market accounts sometimes pay more than savings accounts at the same institution. Check each product separately.

How to move money without losing interest

When you find a better rate, you can move your money without penalty as long as you're moving from a savings account or after a CD matures. Transferring money between banks takes three to five business days using an electronic transfer. During that time, your money earns interest at the old rate until it clears at the new bank, then it starts earning the new rate.

If you have a CD that hasn't matured yet and you find a much better rate elsewhere, you can withdraw the money early and pay the penalty, then deposit it at the new bank. Calculate whether the penalty is worth it: if you're paying three months of interest as a penalty but you'll earn an extra 1% per year at the new bank, the penalty pays for itself in nine months.

Some banks offer CD specials for new customers—a higher rate for a limited time. These are worth watching if you're planning to open a new account anyway. Sign up for rate alerts from comparison websites or from individual banks you're interested in so you know when rates change.

Frequently Asked Questions

Is my money safe at an online bank?

Yes. Online banks are FDIC-insured the same way traditional banks are. Your deposits are protected up to $250,000 per account type at each bank. If the bank fails, the FDIC pays you back. Online banks are regulated by the same federal agencies that regulate traditional banks.

Can I move my money if rates drop after I deposit it?

Yes, if it's in a savings account. You can withdraw money from a high-yield savings account anytime without penalty and move it to a bank with a better rate. If your money is in a CD, you can withdraw it early but you'll pay an early withdrawal penalty, usually equal to a few months of interest.

What's the difference between APY and interest rate?

APY (annual percentage yield) includes the effect of compounding—interest earned on interest. The interest rate is the percentage the bank pays, but APY is what you actually earn. For savings accounts, always compare APY, not the interest rate alone.

Do I need a minimum balance to earn the advertised rate?

It depends on the bank. Some banks require a minimum deposit to open the account, some require a minimum balance to earn the advertised rate, and some have no minimum at all. Check the account details before opening. If you don't meet the minimum, you may earn a lower rate or no interest at all.

How often should I check rates to see if I should move my money?

Check rates every three to six months if you're in a savings account, since rates can change. For CDs, check rates when your CD is about to mature so you can decide whether to renew at the same bank or move to a better rate elsewhere. You don't need to check constantly—rates don't change daily enough to make frequent switching worthwhile.