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Saving money is smart, but simply stashing cash under your mattress won’t make it grow. If you want to boost your savings, you’re in luck — rising interest rates have made savings accounts more competitive.
But which one will grow your money the fastest? It often depends on the bank offering the account. Some savings accounts have a higher interest rate than others. But all come with their own unique set of pros and cons that are worth considering.
Let’s explore some of your options and help you find the account that will earn the most money.
Which types of savings accounts earn you the most money?
The average savings account interest rate is 0.58% as of Dec. 15, 2023. But you can often find much better than that.
There are three types of accounts that often come with higher rates: money market accounts, high-yield savings accounts, and CDs.
High-yield savings accounts
The key difference between a traditional savings account and a high-yield savings account is the interest rate.
These accounts are offered by online banks and typically provide interest rates of 4.50% or higher. Because they operate online, these institutions can save on overhead costs, allowing them to offer better returns to customers.
“Online-only banks offer higher interest rates by limiting the cost to run their banks,” says Kaylin Dillon, certified financial planner and founder of Kaylin Dillon Financial Planning. “Banks like Ally and SoFi don’t have local branches where you can deposit checks, but they are consistently among the banks with the highest interest on savings accounts.”
High-yield savings account rates are variable. They often fluctuate based on market conditions or monetary decisions by the Federal Reserve. Some banks will run promotions offering a higher rate for the first few months. Others may require that you maintain a minimum balance to earn the highest rate possible.
“Make sure you read the full terms that come with that rate,” Dillon says. “Stick with a bank you can trust to have competitive rates, even if it’s not the top rate at the moment.”
Money market accounts
Money market accounts (MMAs) are a hybrid between savings and checking accounts. They come with higher rates, like a high-yield savings account, and offer the flexibility of check-writing and debit card access, like a checking account.
In exchange for that flexibility, you’ll often need to deposit a higher initial amount to open an account. There also may be limits on how many withdrawals you can make each month.
“Be sure to check the actual rate being offered and compare it to other banks’ money market accounts. There is a wide range of rates out there,” Dillon says.
These accounts are a good option if you have enough money to meet the minimum balance requirement and value accessibility.
Certificates of deposit (CD)
Certificates of deposit (CDs) allow you to lock in a fixed interest rate for a set period, ranging from a few months to several years.
Depending on the term, CDs offer some of the highest interest rates, often above high-yield and money market accounts. In most cases, the longer the term, the higher the interest rate.
But keep in mind that your money will be locked away until the CD matures. If you withdraw your money early, you have to pay a penalty (though there are some no-penalty CDs).
Before opening a CD, consider factors such as the interest rate, the term length, and any penalties for early withdrawals.
What to consider when picking a savings account
There is no one-size-fits-all solution to growing your savings. Different accounts have different interest rates and may be better suited for different saving goals.
While the interest rate is essential, it’s important to consider other factors when choosing a savings account.
“I see too many people chasing the highest interest rate like it’s a sport,” Dillon says, “You haven’t done yourself any favors if you earn an extra dollar of interest in exchange for an hour of your month moving money around.”
Here’s what else you should consider:
- How often interest accrues: How often a bank allows the interest to compound can play a big role in how much you earn. If interest compounds daily, you will earn more than if it compounds monthly or quarterly.
- Minimum balance requirements: Do you need to deposit a certain amount to earn interest or avoid charges? It’s essential to know any rules to earn the maximum rate.
- Fees: Earning more interest may not be worth it if you pay a monthly fee to keep the account open. There are plenty of free savings accounts that come with competitive interest rates.
- Access: How easy is it to withdraw your money? Are there limits to the amount of withdrawals you can make? If you want accessibility, a money market or high-yield savings account may work better for you than a CD.
The bottom line
Spend time researching which savings account is best for you — not just how much money you can earn.
Dillon believes you need to choose a savings account that will make your life easier. She encourages looking at online banks for ultimate ease and convenience, as they tend to have the best mobile apps.
“This keeps your life simple so you can get on with your day,” Dillon says.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.
