Best savings account for January 2021 – CNET

A savings account provides a secure place to stash your money, maintains easy access to it and earns you a bit of interest in the process. It’s a keystone of personal finance and if you don’t have one — or you are ready to switch banks and find the best savings account for your needs — our picks can steer you in the right direction.

But first, let’s talk interest. There are plenty of ways to use money to make money. Compared with a regular savings account, investing in equities or a mutual fund has the potential to deliver a much higher rate of return — but there’s also a much higher risk that you could actually lose money, too. A certificate of deposit, or CD, may provide a decent interest rate and the risk is minuscule, given that it’s federally insured, but it usually locks up your money for a set period of time. That may be good for reaching a savings goal, but problematic if you want your savings to double as an emergency fund when you need it.

In contrast, even a high interest savings account will reliably deliver an extremely modest return. And we want to be entirely clear about this: High-yield savings account interest rates, which are influenced, but not directly set, by the Federal Reserve, currently top out at around 1%. So, if your savings account had an account balance of $100,000 for a year, you’d earn approximately $1,000 in interest on it. That’s not much.

And yet, with all the protections of federal deposit insurance (securing balances up to $250,000) and relatively unfettered access to your money, a savings account serves a purpose. Plus, they’re easy to apply for and the eligibility requirements are minimal; even a child can open an account with a parent or guardian co-signer and the minimum initial deposit.

Most savings accounts generally fall into two categories. There’s the online-only kind, which is typically offered by newer banks that don’t have a retail presence. With no branches to maintain or tellers to pay, online banking tends to offer a higher annual percentage yield, or APY, which pays you more in interest over time; these accounts are often referred to as “high yield.” In contrast, most bigger institutions, regional banks and local credit unions, which do have physical branches, provide a way to make deposits or withdraw funds in person and have a face-to-face conversation. Again, there’s none of that with an online bank: all your transactions are done online or using some other bank’s ATM and your customer service options are typically limited to an online chat, email or phone call. For people looking for a high APY who are already familiar with mobile banking and are comfortable with direct deposit, this is fine. However, if you want to interact with a person, online banking might not be for you.

There’s also a third scenario: Some banks have branches in only certain states and may offer a high-yield online-only deposit account exclusively to people who don’t live in one of those states. According to Ken Tumin, founder and editor of DepositAccounts.com, these older financial institutions see these specialized accounts as a way to receive more deposits without having to build a physical branch.  

Best savings accounts, compared

	Best online savings account	Highest interest rate	Best for in-person banking	Another good choice	Another good choice
Bank/institution	High Yield Chime Savings Account	Sallie Mae SmartyPig	Citi Accelerate	PNC High Yield Savings Account	Vio Bank Online High Yield Savings Account
APY	0.5%	Up to 0.8%	0.5%	0.5%	0.57%
Minimum deposit	$0	$0	$0	$0	$100
Estimated annual earnings on $1,000 deposit	$5	Up to $8	$5	$5.00	$5.70
Branch access	No	No	Yes	No	No
Monthly fee	$0	$0	$4.50 when your balance falls under $500	$0	$5 when you choose to receive paper statements

In choosing the best savings accounts, we evaluated more than a dozen offered by a wide variety of national and regional banks. Though we steered clear of local banks and financial institutions that don’t serve a broad swath of customers in the US, it may be worthwhile to take a close look at your local bank and credit union options. You want to find an account that offers a consistently high interest rate — at the moment, savings account APYs may fluctuate on a weekly basis — as well as low or no fees, low or no minimum balance and convenient options for making withdrawals and deposits (direct deposit is key) online or in person. We also looked into factors like mobile banking, how easy it is to check your account balance, whether the financial institution requires a monthly maintenance fee, whether there’s a minimum balance requirement and so much more. 

All that said, if you’re looking for the best savings account for your needs, our favorites are below. We update this list every month.

What are the major differences between checking accounts and savings accounts? 

Most checking accounts are designed to facilitate transactions and payments, whether via a debit card, mobile app such as Apple Pay or a paper check. Most checking accounts don’t offer interest; those that do usually provide a very low rate of 0.1% or less. 

Savings accounts offer significantly higher interest rates and online-only banks typically offer the highest yields. These accounts provide a safe place to store money while keeping it accessible. Until recently, savings account holders were generally limited to making six transactions per month. 

How many withdrawals can I make from a savings account? 

In normal times, the Federal Reserve limits account holders to six withdrawals a month (to preserve liquidity for financial institutions). In response to the coronavirus pandemic, the Federal Reserve made a rule change to Regulation D allowing unlimited withdrawals without any penalty. 

What is a high-yield savings account? 

A high-yield savings account offers a higher interest rate than a traditional savings account. These accounts may have certain deposit requirements, monthly fees or be available only to customers in certain states. 

Traditional savings accounts at a bank will have interest rates ranging from 0.05% to 0.1% while high-yield savings can go as high as 1%. 

Who sets interest rates? How often do they change? And why are rates so low right now?

The Federal Reserve sets a target rate range, which influences the specific interest rates set by individual banks. These rates may change over time; and adjustments often follow a meeting of the Board of Governors, which takes place every five to eight weeks. Since the Great Recession period, from 2007 to 2009, the Fed has consistently kept rates low, which has led to low interest rates for savings accounts. At the moment, the average interest rate for savings accounts is 0.05%. 

That noted, many banks will offer higher rates to attract new customers. The market for high-yield savings accounts is competitive, with some banks offering particularly high rates for an introductory period of time. Because of this, interest rates offered by a financial institution can change quite regularly.

Do you have to pay taxes on the interest earned from a savings account? 

Yes. Your bank will send you a 1099-INT form each year when your savings account earns more than $10 in interest. 

Savings accounts researched

• Ally Online Savings Account
• PNC High Yield Savings
• Vio Bank High Yield Online Savings Account
• Marcus High Yield Savings
• Discover Online Savings Account
• American Express High Yield Savings Account
• Citi Accelerate
• Nationwide My Savings
• Citizens Online Savings Account
• Sallie Mae SmartyPig
• Affirm Savings
• Chime Savings Account
• Synchrony High Yield Savings
• Popular Direct Select Savings

Read more: Best checking accounts