Which Savings Account Will Earn You the Most Money?

Dawn Allcot
whitebalance.oatt / Getty Images
whitebalance.oatt / Getty Images

The U.S. Federal Reserve raised the prime interest rate by another quarter of a point in July 2023, bringing the federal funds rate up to 5.5%, the highest it’s been in 22 years. While that seems scary if you have credit card debt or are looking to take out a mortgage or car loan, it’s good news for savers.

Whether you’re opening a savings account for the first time to take advantage of record-high interest rates or shopping around to help your money work harder for you, you might be wondering which savings account pays you the most money.

The answer is a little more complicated than just comparing interest rates. You have to consider fees, early withdrawal penalties and compounding. Let’s explore the six most common types of savings accounts so you can decide which option is best for you.

Traditional Savings Account

Traditional savings accounts are typically found at brick-and-mortar banks like Chase and Wells Fargo. They often offer interest rates below 1%. For instance, the Chase Savings account delivers an APY of just .

If you have a longstanding relationship with a brick-and-mortar bank, you might enjoy the convenience of a traditional savings account so you can transfer funds easily from checking to savings. Most savings accounts at traditional banks are free with a linked checking account.

Pros

  • Convenient

  • Brick-and-mortar locations for customer service

  • Often free or easy-to-waive monthly fees

Cons

  • Low interest rates

High-Yield Savings Account

Definitions of a high-yield savings account vary but, typically, a savings account offering much greater than the national average savings interest rate, which is currently 0.22% according to USA Today’s report of Curinos data.

Most high-yield savings accounts offer interest rates of more than 1%, with many going as high as 5% and up.

High-yield savings accounts are typically offered by online only banks. With low overhead, these banks can offer no-fee checking and savings and high interest rates on savings accounts. Many have no minimum balance requirements but read the fine print before you open your account to make sure.

Pros

  • High interest rates

  • Usually no monthly fees (or easily waived)

  • Usually no or low minimum balance requirements

Cons

  • No physical branches

  • May not be able to deposit cash

Interest-earning Cash Management Account

While they’re not traditional savings accounts, per se, cash management accounts tied to robo investing services like Wealthfront, Betterment and Allio Finance are worth mentioning. These accounts make investing easy with automated options to buy stocks, crypto and ETFs and earn high returns. The money that you deposit in the account that you haven’t invested yet also earns interest at a high yield.

Pros

  • High interest rates on money you haven’t invested yet

  • High-yield investments with returns tied to the stock market

  • Great for long- and short-term investing

Cons

  • Not easy to withdraw funds

  • No physical branches

  • May have monthly fees

Certificates of Deposit

CDs, or certificates as they are called at credit unions, offer high interest rates with the trade off of typing up your money for a fixed period of time. The benefit of a CD is once you lock in the rate, it won’t fluctuate the way a savings account will. In June 2023, the average interest rate for one-year CDs was 1.63% according to Forbes Advisor data. However, that’s just an average. Today’s one-year CDs can yield returns as high as 4%, with five-year CDs exceeding 5%.

CDs often require hefty minimum deposits, especially to get the best rates. You might face early withdrawal penalties if you take the money out before the CD reaches maturity. But if you are looking for steady returns and have a mid- to long-term savings goal in mind, such as saving for a down payment on a house or a new car, a CD may be a wise choice.

Pros

  • Guaranteed returns

  • Terms of 3 months up to 10 years

  • High interest rates

  • Available through online and traditional banks

Cons

  • Early withdrawal penalties may apply

  • High minimum deposits

Money Market Accounts

Both traditional and neobanks offer money market accounts. Money market accounts typically have interest rates that are competitive with other high-yield savings accounts. However, they might include features like check-writing capabilities or even online bill pay directly from the account.

Money market accounts are a good place to hold emergency savings thanks to the combination of high yields and high liquidity. Read the fine print before opening a money market account, because some may have monthly fees, minimum opening deposit requirements, or ongoing minimum balance requirements. As with CDs, the larger your savings, the higher the interest rate in most cases.

Pros

  • Usually offer high interest rates

  • Easy to access your money through checks or a debit card

Cons

  • May have monthly fees

  • May have minimum balance requirements or minimum opening deposit requirements

Fixed Annuities

Fixed rate annuities provide the certainty of CDs with high yields on high balances. Fixed annuities are not like traditional savings accounts. Instead, they are a form of investment where you pay money to an insurance company, who invests the money for you. While CD terms start at three months, with one-month terms available, fixed annuities are better for long-term investments.

You can withdraw funds — typically during retirement — at regular intervals. Fixed annuities offer yields greater than a savings account, but not as good as the stock market, traditionally. However, there is little-to-no risk with a fixed annuity, making the investment a practical part of a diversified portfolio.

Pros

  • High yields

  • Steady, guaranteed returns

  • Can provide a steady source of retirement income

Cons

  • Usually has maintenance fees

  • Possible surrender fees if you close the account before the term ends

  • Withdrawal limits reduce liquidity

Final Take

Today’s high interest rates make it enticing to want to save more. Shop around for the best savings accounts to meet your needs, keeping in mind liquidity, interest rates and fees.

FAQ

Here are answers to some of the most frequently asked questions about savings accounts and their earnings.

  • Which savings account will earn you the most money daily or monthly?

    • Today's online high yield savings accounts offer APYs as high as 5.25% annually. To earn faster, look for an account where interest is compounded daily.

  • What type of account pays the most?

    • A high-yield online savings account typically earns you the most money with the least amount of fees. You might also find CDs or certificates with terms of 12 months or longer that offer competitive interest rates, but keep in mind that your money will be tied up for the duration of the term, or you could face early withdrawal penalties. For a combination of liquidity and high yields, consider an online savings account, such as Ally Bank, which offers 4.25% or Tab Bank, which offers 5.02%. OceanFirst Bank and CloudBank 247, offer 5.25% and 5.20% APYs, respectively, when you sign up through Raisin, formerly SaveBetter.

  • Which savings account earns the least money?

    • Traditional savings accounts, such as from brick-and-mortar banks, tend to offer lower interest rates than online-only savings accounts. These banks are typically more widely available to customers, so the priority is on providing convenience and ease of use, rather than on earnings.

Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of Aug. 4, 2023.

This article originally appeared on GOBankingRates.com: Which Savings Account Will Earn You the Most Money?

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