Savings APYs are hitting 5%. Time to switch banks?
The top savings account rates have surpassed 5 percent, making it an excellent time for consumers still earning low rates to seek out greener pastures. A rate of 5 percent is effectively more than eight times the current national average savings account rate of just 0.59 percent.
Rates of 5 percent reflect a significant increase from July 2021, for instance, when the top rate listed among Bankrate’s best high-yield savings accounts was just 0.55 percent.
Despite the high rates being offered today, only 1 in 5 consumers with a savings account currently earns a competitive annual percentage yield (APY), Bankrate recently found.
Banks currently paying top-notch rates on savings and checking accounts include:
- UFB Direct: The High Yield Savings account from UFB Direct earns a 5.25 percent APY on all balances and requires no minimum deposit amount.
- Popular Direct: The Select Savings account from Popular Direct earns a 5.2 percent APY, with a minimum opening deposit of $100.
- TAB Bank: You’ll currently earn an APY of 5.02 percent with the High Yield Savings Account from TAB Bank. It requires $0 to open and charges no monthly service fee.
- Salem Five Direct: The eOne Savings account from Salem Five Direct earns an APY of 5.01 percent on balances of up to $1 million, and you’ll need just $10 to open it.
- Bask Bank: The Bask Interest Savings Account from Bask Bank earns an APY of 5 percent. You won’t need any minimum amount to open it, and you won’t be charged a monthly service fee.
- Bread Savings: Bread Savings offers a high-yield savings account that earns a 5 percent APY that charges no monthly fee and has a minimum opening deposit of $100.
Note: Annual percentage yields (APYs) shown are as of Sept. 6, 2023.
All savings accounts monitored by Bankrate are insured by the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Share Insurance Fund (NCUSIF). This guarantees consumers that their money is safe, as long as it’s within the established limits and guidelines.
“Savers have two things in their corner now,” says Greg McBride, CFA, Bankrate chief financial analyst. “Yields are unlikely to fall, and may even rise further, in the short-term; and as the rate of inflation moves lower, the buying power of what you’re earning on savings increases. That 5 percent return looks better and better as inflation moves from 4 percent, to 3 percent, and down to 2 percent.”
Why savings account rates are increasing
Savings account rates are loosely tied to the rates the Federal Reserve sets, and the Fed has raised its target for the federal funds rate four times so far in 2023, as well as seven times in 2022.
When the U.S. central bank raises its rate, banks offering top rates tend to increase their savings account yields as well. The average savings account interest rate has risen seven-fold since the Fed started hiking rates in March 2022. What’s more, returns on savings accounts are at a 15-year high, Bankrate data shows.
The average savings account interest rate has risen seven-fold since the Fed started hiking rates in March 2022.
The Fed may choose to raise interest rates to try and help reduce high inflation. Raising its federal funds target rate can effectively increase the cost of borrowing for consumers and businesses. While that means higher interest rates on loans, it also may help savers by causing an increase in savings account interest rates.
Overall, the best savings account yields can be found at online banks, which often have the ability to pay higher yields since they don’t have the overhead costs of maintaining branches. It’s also possible to shop around and find competitive rates at some smaller banks and credit unions — while many big banks continue to pay rock-bottom yields.
“Big banks often have a surplus of deposits so there is no need for them to pay up to bring in more,” Bankrate’s McBride says. “But smaller banks and credit unions often need to pay higher returns in order to stand out from the crowd and attract the deposits they need. As a saver, you can use this to your advantage by scoring higher returns while preserving the safety of federal deposit insurance.”
Why a savings account is a good idea
Whether you want to save for emergencies or other financial goals, a savings account is a safe place for your money that keeps it easily accessible. A savings account complements a checking account as a place to earn some interest on money that’s not needed for bills or other regular expenses.
Savings accounts are often easy to open, and many don’t charge maintenance fees or require a set minimum balance amount.
A savings account is often the best place for your emergency fund, so you’ll have access to money in the event of unplanned expenses such as a medical bill, a car repair or an unexpected job loss.
Another use for a savings account is to store funds you’re saving for upcoming planned purchases, such a vacation, a home improvement project or a down payment on a car.
“When considering opening a new high-yield savings account, think about how you’ll use the account to complement your other savings and investment strategies and determine how much cash you need for short-term goals for your particular situation,” says Scott Schleicher, senior financial advisor at Empower. “For example, someone might consider setting up a high-yield savings account when planning for a goal in the near future, such as a wedding, vacation, or buying a car,” he says.
Another use for a savings account could be an emergency fund to store living expenses, Schleicher says.
Bottom line
Everyone can benefit from having a federally insured, high-yield savings account, since it’s a safe place to keep your money while earning some interest. It’s usually simple to transfer funds to a savings account from a checking account or another savings account, which can make it easy to add to the balance and earn more interest.
In all, the competitive rates currently offered on many high-yield savings accounts make it worth shopping around to find the best one for you.
Savings account FAQs
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Your money in the bank is safe in a savings account when it’s insured by the Federal Deposit Insurance Corp. (FDIC). The FDIC insures up to $250,000 per depositor, per FDIC-insured bank, per ownership category.
Likewise, money in a credit union savings account is insured when the credit union is a member of the National Credit Union Administration (NCUA). The NCUA manages the National Credit Union Share Insurance Fund (NCUSIF), which guarantees your money is safe, with a $250,000 cap for each account and owner.
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If you deposit $10,000 in a savings account that earns a 5 percent APY, you’d have earned around $500 in interest after one year. Bankrate’s savings account interest calculator can help you determine how much interest your money can earn over time.
Note that savings account APYs are typically variable, meaning the bank can raise or lower them at any time.
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Short for “annual percentage yield,” APY is a percentage that indicates how much interest — including the effect of compounding interest — you’ll have in a year in a deposit account, such as a savings account.
APY is an important factor to consider when you’re shopping around for a savings account, since the APY can vary widely from bank to bank. You’ll typically find the highest APYs at online-only banks. Paying competitive yields can help such banks draw customers away from larger banks, which often pay rock-bottom yields.
