Savings Accounts & Best Interest Rates
How to Open a Savings Account and Make the Most of It
A savings account is the most basic type of account at a bank or credit union, allowing you to deposit money, keep it safe, and withdraw funds as needed. Savings accounts typically pay interest on your deposits, but interest rates are relatively low on these accounts, with the average account paying less than 1% in interest annually. Still, some savings accounts offer higher interest rates than others, allowing you to grow your money more quickly while still keeping your money safe.
Below is a compiled list of highest-earning savings accounts from across the country. Based on how much money you’re looking to initially deposit, it will show you some of the high-interest savings accounts you can open today.
- Customers Bank at 2.25% APY - High Yield
- Salem Five Direct at 2.05% APY - High Yield, $100 To Open
- Utah First Federal Credit Union at 2.00% APY - High Yield, $25,000 Minimum Balance
- Citizens Access at 2.00% APY - High Yield, $5,000 Minimum Balance
- Popular Direct at 2.00% APY - High Yield, $5,000 To Open
- Northpointe Bank at 1.95% APY - Competitive Yield
- CIBC Bank USA at 1.90% APY - Competitive Yield
- PurePoint Financial at 1.90% APY - Competitive Yield
- IncredibleBank at 1.88% APY - Competitive Yield, No Monthly Fees
- Synchrony Bank at 1.85% APY - No Minimum Balance, ATM Access
- Goldman Sachs Bank USA at 1.85% APY - No Minimum Balance, No ATM Access
- Barclays Bank at 1.85% APY - No Minimum Balance
- Ally Bank at 1.80% APY - No Minimum Balance, Free Checking Account
- American Express National Bank at 1.75% APY - No Minimum Balance, No Fees
- Alliant at 1.75% APY - $5 To Open, ATM Access
Why Some Bank Interest Rates Are Higher Than Others
Most bank interest rates are around the same level, but there will certainly be differences. Some banks pay more than others for the same product (like savings accounts). It’s not uncommon to find a difference of 1% APY or more between banks, and that can add up.
Banks raise rates when they want to gather money. If they need to get deposits in the door, a high rate on savings accounts will attract money. If on the other hand, they don’t need cash, they can keep rates lower.
Banks have different approaches to earning money. Some take deposits and lend them out, while others take a more varied approach (earning revenue and fees from other services like credit cards and ancillary business).
Organizational structure is also important. Some banks have shareholders demanding that the bank grow (and/or share income with the shareholders), and it’s hard for those banks to pay high rates to depositors. However, some banks are able to keep only what they need to pay the bills and share the rest of the revenue (from loans, ATM fees, etc) with account holders. Small banks and credit unions are most likely to fit the latter model.
Depending on the economy -- possibly the local economy for small banks and credit unions -- you’ll find that the “borrowing and lending” banks change rates as their customers’ needs change.
Bank Interest Rates and the Economy
Economic conditions are the most important factor in bank interest rates. Whether you earn a lot or a little depends on rates in the world as a whole. For the most part, bank interest rates follow other rates. When rates “out there” are low, you won’t earn much on your savings at the bank; when interest rates in general rise, bank rates will follow.
Rates are lowest during slow economic times. There is not much demand for money, so you aren’t rewarded for handing it over to your bank. There’s not a line of customers beating on the bank’s door asking for loans. The bank is happy to take your money, but they can’t do much with it, so they pay you a low rate.
Why You Should Open a Savings Account
It’s generally wise to have a savings account, and they’re often free — especially at online banks and community banks and credit unions. Without a savings account, where are you going to keep money that you don’t plan to spend in the immediate future? It’s unsafe to hold cash, and there’s a psychological benefit to using a savings account: It’s tempting to spend money that you’ve got in-hand (or in a checking account), so a savings account helps you set funds aside and reach your goals. Bank accounts also make it easier for you to function in the modern world: You can get by without one, but you’ll spend a lot more time and money on things that could be avoided if you open an account.
Generally speaking, the two big benefits of savings accounts are safety and growth.
A Safe Place to Access Your Money
A savings account holds your money in a safe place — your bank or credit union. Instead of carrying cash or keeping money in your home, you can put the funds into a savings account for safe keeping.
Cash that’s outside of the bank can easily get stolen or damaged in a fire. But when the federal government insures your savings, you avoid the loss of losing money if your bank or credit union fails.
Savings accounts offer easy access to your cash (also known as liquidity, or the ability to make a withdrawal easily and quickly). Once you’re ready to spend money, you can withdraw cash or transfer funds to your checking account to pay by check, debit card, or an electronic funds transfer. You generally do not make those types of payments directly from your savings account — federal law limits the number of certain transfers out of savings each month.
Although there are restrictions on outgoing transfers, you can make an unlimited number of cash withdrawals from your savings account at an ATM or with your bank’s tellers.
Savings accounts pay interest on money in your account. As a result, your bank will make small additions to your account, typically every month. The interest rate depends on economic conditions and your bank’s desire to compete with other banks. Savings account rates are generally not very high — they might just match or barely beat inflation — but your risk of loss is virtually nonexistent when your funds are federally insured. A little bit of interest is better than nothing, which is what you'll get from a checking account (though there are exceptions).
To compare savings accounts, you'll want to look at the annual percentage rate (APY) paid on the account, as well as details like minimum deposit amounts, fees, and other features.
Alternatives to the Basic Savings Account
While many people head to their local bank when it comes time to open a savings account, it's likely that the rates you find there will be relatively low (and rarely approach the interest rates in the list above). To get the best possible rate, you might consider one of these variations on the basic savings account.
Online Savings Accounts
Online-only accounts are a great option for higher earnings and lower fees. Online banks don’t have the same overhead costs as brick-and-mortar banks. The result is that many of the highest-yield savings accounts can be found at online banks; indeed, many of the high-earning accounts listed above are found at online banks. Online banks often allow you to get started with as little as one dollar, though some of the higher-yielding accounts require larger deposits.
Despite being online banks with no physical branches, you’ll often get an ATM card for withdrawing cash. You can also transfer funds to (or from) your local bank or credit union electronically in about three business days. To add money, you can often deposit checks with your mobile device.
Money Market Accounts
Similar to savings accounts, money market accounts pay interest on your deposits and limit how often you can make certain transfers. However, they typically pay more than savings accounts, and it’s easier to spend your money. These accounts usually provide a payment card or checkbook that you can use for spending up to three times each month (so they’re useful for emergency savings or large, infrequent payments).
Certificates of Deposit (CDs)
If you can commit to leaving your savings untouched for at least six months, you might be able to earn more in a CD. These accounts come with varying time commitments (six months, one year, or two years, for example), but you may have to pay a penalty if you cash out early. Some CDs are flexible, offering penalty-free early withdrawals, but the flexibility often comes with a slightly lower rate.
Why do banks pay interest on your money? To encourage you to deposit money and leave it in your account. They invest and lend those funds out to other customers at a higher interest rate and earn a profit on the difference (or “spread”) between those interest rates. Learn more about how banks make money.
How to Open a Savings Account
Opening a savings account should take less than an hour (sometimes just a few minutes), and it’ll serve you for many years to come. The easiest way to open an account is to do it online or with your mobile device. If you prefer in-person guidance, visit a bank branch.
- Compare banks by reviewing interest rates, fees, minimum balance requirements, and other services. Savings accounts don’t pay much, so any fees will most likely eat into the money you deposited — in addition to wiping out any earnings in the account.
- If you’re considering credit unions, verify that you’re eligible to join. Look for that information online, or just call the credit union and ask about opening an account.
- Choose the bank or credit union that meets your needs. The most important thing is to get an account that’s easy to use and that you’ll actually put money into (whether that means the branch is conveniently located or the mobile app makes sense to you). A slightly higher savings rate is not critical unless you’re going to make large deposits.
- Gather the information you need to open an account. You’ll need a government-issued identification (driver’s license number, military ID, or other ID), your Social Security Number or similar, and a mailing address.
- Open an account online or in-person by submitting an application.
- Fund the account with an initial deposit, if required (or just add to it when you’re able to do so).
To open an account, at least one accountholder needs to be over the age of 18. The specifics vary from bank to bank, so ask a customer service for details if you’re opening an account for a minor. There are several ways to save money for somebody under 18, so evaluate all of the options.
Talk to the staff at small banks and credit unions if you have significant assets. Ask what they can offer if you bring your deposits to them -- the institution’s president may be just down the hall, and you may get a nice offer on the spot. Consider how long you can lock the assets up, and ask what they can offer for a 12 or 36-month commitment.
How to Use Your Savings Account
A savings account is a good place to keep money safe for future needs. Savings accounts (and the variations listed above) are particularly useful for money you may need within the next few years. You might not earn much in savings, but as long as your funds are federally insured and you’re fee-conscious, you’re not going to lose that money either.
Some common uses of savings accounts are described below.
Saving for Major Purchases
If you’re planning to buy a house or a car within the next few years, you’ll probably need a down payment to qualify for a loan — and get the best terms. And a savings account is a good place to build (and store) that down payment while you’re getting ready to buy.
Upcoming Vacations or Other Expenses
You’ll enjoy your vacation even more if you’re not going into debt and you have sufficient funds to pay for all of that fun. Build up a vacation fund in a savings account by transferring money from your earnings every month. By getting that money out of your checking account, you won’t be tempted to spend it.
Life always manages to surprise us. An emergency fund can help you avoid taking on toxic debt (or letting unpleasant — if not dangerous — problems linger) when the unexpected happens. Funds in a savings account are generally accessible without any penalty, so you can take care of issues quickly.
Adding Funds to Your Savings Account
There are several ways to add money to a savings account.
A traditional way to make deposits is to bring cash to a bank or credit union branch. You can also make deposits at some ATMs, allowing you to deposit cash outside of banking hours (or at a location that’s more convenient for you).
You can deposit checks directly into a savings account. When you make the deposit, just put your savings account number on the deposit slip. With most banks, it’s also possible to deposit checks with your mobile device — so you don’t need to go anywhere near a branch or ATM. Funds will be available in a few days, depending on your bank’s policies.
Transfer From Checking (Internal)
If you have a checking account, moving money from checking to savings within the same bank is easy, and it’s often instant. Just use your bank’s app, website, or customer service line to make the move. Get that money out of checking so you know that it’s reserved for something else.
Electronic Transfer (Bank to Bank)
You can also make electronic deposits to a savings account from another bank. For example, link your local brick-and-mortar account to an online account that pays more or allows you to set up “subaccounts” to help you save for goals.
If your employer pays by direct deposit, ask them to split your payment so that some of it goes directly to a savings account. That money will never hit your checking account, so you’ll save without even trying.
Using Money From Your Savings Account
To use your money, you’ll often need to move funds out of a savings account. In most cases, it’ll go to a checking account, and you can write a check (or use online bill payment) or use your debit card for spending. But there are several ways to use money from savings.
If you want physical cash, you can get funds from an ATM. You can make unlimited withdrawals from ATMs (or with a teller, in person).
Transfer to Checking (Internal)
Moving money to a checking account in the same bank is fast and easy. Just contact customer service, or make the transfer using your bank’s app or website.
Electronic Transfer (Bank-to-Bank)
It’s also easy to move funds to a different bank, but the process takes several business days unless you wire the money for an additional fee.
Request a Check
In some situations, it might be easiest to have your bank print a check using funds from your savings account. For example, when making a down payment on a house, your bank can create a cashier’s check payable to a title company or seller.