What you need to know about the best savings accounts
What do the best savings accounts have in common?
The best savings account interest rates are around 5%. At a brick-and-mortar bank, you'll often find savings rates closer to the national average, which is currently 0.47%.
If you have a $10,000 savings balance, choosing an account that pays 5% will earn you about $500 in a year, while an account paying you 0.40% APY would earn about $40. The difference increases the more you deposit and the longer you keep it in the account.
Why should I care about the best savings account rates?
If you have money left in your checking account each month — or you can adjust your budget so that you do — you should have a savings account with a high rate. (Again, think around 5%.) It's always helpful to have money set aside for emergencies, and it'll earn you much more in an account that pays one of the best savings account rates than in a checking account.
Just make sure you can keep enough in your savings account to avoid monthly fees. Most online savings accounts don't charge these, but many traditional accounts do.
What monthly fees do savings accounts usually have?
The best savings accounts typically don’t charge monthly fees. You make your deposit and watch your balance grow as your money earns interest.
» Find out how your savings could add up with NerdWallet’s compound interest calculator.
Why does NerdWallet pick online savings accounts as the best savings accounts?
It's easy to find a savings account at your local bank, but if you want to earn a high rate and pay the lowest fees, you should consider storing your savings in an online account. Without the added expenses of large branch networks, online banks and nonbank providers are able to offer more favorable returns than national brick-and-mortar banks.
» Learn more about NerdWallet's favorite high-yield online savings accounts.
Is my money safe in a savings account?
Yes, provided your money is insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration.
» Dig deeper: Learn more about FDIC and NCUA insurance for deposit accounts.
Do the best savings account interest rates change over time?
Yes, rates are variable and can change over time. If you are looking for a fixed rate account, and can set aside funds for a specific time period without making a withdrawal, consider opening a certificate of deposit. NerdWallet's list of best CD rates features top options.
How often do interest rates change?
Financial institutions generally don’t change savings rates on an hourly, daily or even monthly basis. In fact, under normal circ*mstances, it’s common to see APYs remain the same for several months.
It’s important to note, however, that rates are variable and theoretically can change at any time. In addition, many providers will change their rates based on what their competitors are doing. You will often see groups of providers increase or decrease their APYs at around the same time, especially if the Federal Reserve recently increased or cut rates.
To get the best yield for your money, it’s a good idea to check out the best savings rates on a regular basis — at least once a month.
» Find high rates across checking, savings and other accounts in NerdWallet's list of high-interest accounts.
Savings account terms you need to know:
Savings account: A deposit account from a financial institution that typically earns interest.
Interest: Money a financial institution pays into an account over time.
Compound interest: Compound interest is the interest you earn on both your original money and on the interest you keep accumulating. In an account that pays compound interest, the return is added to the original principal at the end of every compounding period, typically daily or monthly. Each time interest is calculated and added to the account, the larger balance earns more interest.
Annual percentage yield: The annual percentage yield, or APY, is the amount of interest an account earns in a year. The calculation is based on the account’s interest rate and the number of times interest is paid during the year.
» Read more about 10 essential banking terms you need to know.
How can I earn high interest rates besides a savings account?
Here are a few options:
Money market accounts: These accounts are a type of savings account, but they might have higher minimum balances and offer perks such as check-writing, which is rare for savings accounts.
Certificates of deposit: These accounts lock your balance away for a specified period of time — often between one year and five years — in exchange for a higher interest rate. But if you withdraw any money during the term, you'll typically have to pay a penalty. CDs are also covered by FDIC insurance.
» Find out more about your savings account options.
Is savings account interest taxable?
Yes, savings account interest is generally taxable. Your provider will probably send you a form reporting it if you earned more than $10 during the tax year. Note that you are likely to earn more interest with a high-yield savings account.
What’s the difference when NerdWallet notes “Member FDIC” vs. “funds insured by FDIC” on savings accounts?
When we describe a savings account that is offered by a bank, we note “Member FDIC,” since the bank is a member of the Federal Deposit Insurance Corp. and the account is federally insured. If a financial technology company — not a bank — offers a savings account, it typically partners with a bank that is an FDIC member to hold the funds so deposits can be insured. In those cases, we note “funds insured by the FDIC.” Savings accounts at credit unions are federally insured by the National Credit Union Administration, so we note “funds insured by the NCUA.”
Full list of editorial picks: best savings accounts
Here are all of NerdWallet's picks for the best savings accounts.
American Express, 4.35% APY (annual percentage yield) as of 12/14/2023. Minimum to open = $0 (read full review). Member FDIC.
Barclays, 4.35% savings APY with no minimum to open account (read full review), Member FDIC.
Bask Bank, 5.10% savings APY with no minimum to open account (read full review), Member FDIC.
BMO Alto, 5.10% savings APY with no minimum to open account (read full review), funds insured by FDIC.
Bread Savings, 5.15% savings APY with $100 minimum to open account, (read full review), Member FDIC.*
CIT Bank, 5.05% savings APY with $100 minimum to open account (read full review), Member FDIC.
Citibank, 4.45% savings APY with no minimum to open account (read full review), Member FDIC.
Citizens, 4.50% savings APY with $0.01 minimum to open account (read full review), Member FDIC.
Discover Bank, 4.35% savings APY with no minimum to open account (read full review), Member FDIC.
EverBank (formerly TIAA Bank), 5.15% savings APY with no minimum to open account (read full review), Member FDIC.
First Foundation Bank, 5.00% savings APY with $1,000 minimum to open account (read full review), Member FDIC.
LendingClub, 4.65% savings APY, $100 minimum to open account (read full review), Member FDIC.
Marcus, 4.50% savings APY with no minimum to open account (read full review), Member FDIC.
Quontic Bank, 4.50% savings APY with $100 minimum to open account (read full review), Member FDIC.
Salem Five Direct, 5.01% savings APY with no minimum to open account (read full review), Member FDIC.
Sallie Mae Bank, 4.50% savings APY with no minimum to open account (read full review), Member FDIC.
SoFi, 4.60% savings APY (variable and subject to change) with no minimum to open account (read full review), Member FDIC.
Synchrony Bank, 4.75% savings APY with no minimum to open account (read full review), Member FDIC.
TAB Bank, 5.27% savings APY with no minimum to open account (read full review), Member FDIC.
UFB Direct, 5.25% savings APY with no minimum to open account, Member FDIC.Editor's note: Over the past year, NerdWallet readers have described delays in getting issues resolved through customer support. These complaints don't factor into UFB Direct's star ratings. Please read the full review for more details.
Upgrade, 5.07% APY, no minimum to open account (read full review), funds insured by FDIC.
» Interested in getting money from banks? See NerdWallet's best bank account promotions and bonuses
*Bread Savings disclosure
Bread Savings says: All Bread Savings APYs are accurate as of 01/18/2024. APYs are subject to change at any time without notice. Offers apply to personal accounts only. Fees may reduce earnings. For high-yield savings accounts, a minimum of $100 is required and must be deposited in a single transaction. For high-yield savings accounts, the rate may change after the account is opened.
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Now, let's discuss the concepts mentioned in the article "What you need to know about the best savings accounts."
Savings Account
A savings account is a deposit account offered by financial institutions that typically earns interest over time It is a secure place to store your money while earning a return on your balance.
Interest
Interest refers to the money that a financial institution pays into a savings account over time It is a way for the account holder to earn additional income on their deposited funds.
Compound Interest
Compound interest is the interest you earn on both your original money and on the interest you keep accumulating In an account that pays compound interest, the return is added to the original principal at the end of every compounding period, typically daily or monthly. Each time interest is calculated and added to the account, the larger balance earns more interest.
Annual Percentage Yield (APY)
The annual percentage yield (APY) is the amount of interest an account earns in a year. It is calculated based on the account's interest rate and the number of times interest is paid during the year APY is a useful measure for comparing the potential returns of different savings accounts.
Money Market Accounts
Money market accounts are a type of savings account that may have higher minimum balances and offer additional perks such as check-writing, which is rare for regular savings accounts They are another option for earning higher interest rates.
Certificates of Deposit (CDs)
Certificates of deposit (CDs) are accounts that lock your balance away for a specified period of time, typically between one year and five years, in exchange for a higher interest rate However, withdrawing money from a CD before the term ends usually incurs a penalty.
Taxation of Savings Account Interest
Savings account interest is generally taxable. If you earn more than $10 in interest during the tax year, your provider will likely send you a form reporting it It's important to note that high-yield savings accounts may earn more interest, potentially resulting in higher taxable income.
Safety of Savings Accounts
As long as your money is insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), your funds in a savings account are safe The FDIC and NCUA provide insurance coverage to protect depositors in case of bank or credit union failures.
Online Savings Accounts
Online savings accounts are often recommended as they tend to offer higher interest rates and lower fees compared to traditional brick-and-mortar banks Online banks and nonbank providers can provide more favorable returns due to lower operating expenses without the added costs of maintaining physical branches.
These are the key concepts related to savings accounts mentioned in the article. If you have any specific questions or need further information, feel free to ask!
