The Best High-Interest Savings Accounts of 2019

Your rate determines how quickly your account grows. The higher the rate, the better, because you earn more on your savings with a higher rate. In addition to the stated interest rate, an account’s APY is useful for comparing accounts. That number illustrates how much you earn in your account over the course of a year when you allow your earnings to compound (see below).

Not necessarily. Run the numbers to determine how much you gain by choosing a bank with a higher interest rate—it might not be worth the trouble of moving your money. The more money you have in savings, the more it matters. But most people keep only a modest amount in savings, so high rates aren’t as important as banks might lead you to believe.

For example, if you keep $2,500 in savings, how much higher does the rate need to be for you to care? Assume you’re choosing between two banks, with all other things being equal:

• If you earn an extra 0.25% at one bank, that translates to roughly $6.25 per year
• A rate that’s 0.50% higher returns an additional $12.50 per year
• Earning an extra 1% would yield about $25 per year

See how to calculate interest earnings with numbers that you choose.

The interest rate on your savings account changes over time. In some cases, the rate remains the same over extended periods. But when rates in the broad economy change, banks typically move in sync with those changes. If the Fed cuts rates, there’s a good chance that your savings account rates will remain stagnant or fall. When rates rise, banks tend to increase rates, but not necessarily as quickly as you’d like.

CDs enable you to lock in a rate that doesn’t change, but there are pros and cons of using CDs.

How much interest you actually earn can vary quite a bit. According to the Federal Deposit Insurance Corp., the average annual percentage yield (APY) across all savings accounts is just 0.09%. While interest rates tend to be low at the biggest brick and mortar banks, some banks (including many online ones) offer rates a little over 2%.

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 yield interest 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.

Interest you earn in your savings account is generally taxable as income. Your bank typically reports your earnings on Form 1099-INT, and you should provide that information to your tax preparer or include it with your tax filings.

With individual accounts, joint accounts, and other taxable accounts, you pay interest for the year you receive the income. But if your account is part of a retirement account like an IRA, you may be able to postpone or avoid taxation on that interest. 

In many cases, banks do not provide a 1099-INT unless you earn at least $10 during the year.