Summary: Best Savings Accounts

What is a savings account?

A savings account is a type of financial tool found at both banks and credit unions. These federally insured accounts typically pay interest, but often at lower rates than other interest-bearing financial products insured by the government, like certificates of deposit.

In exchange for lower rates, they offer more liquidity, allowing for up to six types of withdrawals or transfers per statement cycle.

That makes savings accounts ideal for stashing money you may need access to if unexpected costs arise.

Indeed, savings accounts can play a crucial part in your financial health. Because there's no set term for maturity with a savings account, they provide a good spot to park your emergency fund.

And safety is the name of the game with these savings products. Savings accounts are insured up to $250,000 at banks by the Federal Deposit Insurance Corp. (FDIC) and at credit unions by the National Credit Union Association (NCUA).

If you are applying for a savings account, consider interest rates (APY), minimum deposits, and your financial goals when choosing a savings account. The best savings accounts will provide a high-yield APY but also give you the flexibility to securely withdraw or transfer money each statement period.

Why get an online savings account?

Online savings accounts have a few distinct benefits over savings vehicles found at brick-and-mortar institutions.

Most notably, online savings accounts tend to offer higher interest rates and lower fees. That's because online banks don't carry the same overhead costs compared with walk-in branches, and can pass on that savings to customers.

In exchange for being able to visit a branch and talk to a teller, online banks often offer round-the-clock customer service. And cutting-edge technology is also a big perk, which typically allows for things like online bill payment, mobile check deposit and often a larger ATM network.

What is the average interest rate(s) on a savings account?

Over the past several years, since the financial crisis, interest rates on savings accounts have been historically low. But they have been inching up lately.

The average interest rate on a savings account is 0.09 percent APY.

Fortunately, many banks and online institutions offer savings account rates well above that average. That makes it crucial to shop around for the best deal when you're in the market for a savings vehicle.

Do savings accounts have compound interest?

When choosing a savings account, it's important consider how often the account compounds interest. Generally, all savings accounts compound, but some do it more often than others — on a daily, monthly, quarterly or even annual basis.

Daily compounding is ideal. The more frequently interest is compounded, the faster your savings will grow.

Keep in mind that because of compound interest, even small deposits can add up to big amounts over time.

You can use our compound interest calculator to calculate your potential earnings on a savings account.

Is savings account interest (APY) taxable?

The IRS considers any interest earned on a savings account to be taxable. If you earn interest from your savings product, you'll be required to submit at 1099-INT form to the IRS.

Fortunately, you don't have to pay interest on your savings account's balance, only on the interest earned. So, if your savings account has $1,000 and you earn $10 in interest for the year, you only pay taxes on that $10 gain.

Benefits and risks of a savings account

Savings accounts, like all financial tools, come with benefits and risks. It's wise to weigh the pros and cons to see if one of these accounts is ideal for your financial situation.

Savings account vs. money market account vs. mutual fund

Savings accounts, money market accounts and mutual funds often get lumped into the same broader "savings" category. But they have some differences.

Between the three, savings accounts and money market accounts are most alike. They are both insured by the government at banks and credit unions up to $250,000. Both also pay interest and allow for up to six withdrawals or transfers per statement cycle.

However, money market accounts typically pay a higher interest rate than savings accounts. Money market accounts also offer check-writing and debit card capabilities, a degree of liquidity not often found with savings accounts.

Another big difference between the two is what can be done with your money. Banks and credit unions can use the money you deposit into a money market account to make low-risk investments in financial products like CDs. But with a savings accounts, institutions can only use your money to make loans to other customers.

Here's a quick comparison of the three:

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  Safety: Savings and money market accounts are insured by the government up to $250,000, while mutual funds are not. Money market mutual funds are still considered low-risk investments.

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  Liquidity: Savings and money market accounts offer up to six withdrawals per month. Mutual funds allow you to redeem shares at any time for the current net asset value.

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  Earnings: Money market accounts typically pay more than traditional savings accounts. But mutual funds often pay more than both money market and savings accounts.

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  Fees: All of these types of savings vehicles may come with some fees.

Rather than letting money stagnate in a no- or low-interest account, consider Bankrate’s best online savings accounts to prepare for your future financially.

Overview: Best Savings Accounts in August 2018

Here is a breakdown of popular banks that offer high-yield online savings account rates.

Barclays Bank: 1.85% APY, no minimum balance for rate

Overview: Barclays is often known for its credit cards and personal loan products, but it's also a major player in the savings product category. Indeed, Barclays provides both a high-interest online savings account and a number of online CDs. And it's typically a top contender on its interest rates. Products from Barclays are only available online in the U.S. Fortunately, for savers, that means the bank can limit overhead costs and pass its savings on to its customers. For its online savings account, the online bank is offering one of the top rates in the nation and requires no minimum to open.

Perks: Among the perks of an online savings account at Barclays, you'll find a very competitive interest rate, no minimum to open, 24/7 access to funds, online transfers to and from other banks and direct deposit.

What to watch for: If you're looking for a full-service banking institution, Barclays isn't a great option. The bank doesn't offer a checking account option, an ATM network, a mobile app or branch locations. It's best for those who like to bank online and want an outside institution for its savings options.

Synchrony Bank: 1.85% APY, no minimum balance for rate

Overview: Synchrony Bank provides a range of depository products for consumers. That includes a savings account, money market account and a number of CDs. As an online bank, it has limited overhead cost, which means it can return those savings to customers in the form of higher rates. Indeed, its savings account and other depository products are consistently among the top-paying accounts. Synchrony also has a highly rated customer service department available by online chat or by phone seven days per week. And customers get a lot of perks, including complimentary identity theft resolution and travel and leisure discounts. You'll even get a dedicated customer service number as a "Diamond" customer. That's in addition to access to webinars, three free wire transfers per statement cycle and unlimited ATM reimbursements.

Perks: At Synchrony, you'll get very competitive rates. But you'll also gain access to other perks, including the ability to manage your account 24/7 online.

What to watch for: Synchrony Bank doesn't offer a checking account. It's not a full-service bank. So, if you're looking for liquidity, you might want to stash your cash elsewhere.

Goldman Sachs Bank: 1.85% APY, $1 minimum balance for rate

Overview: The well-known investment firm, Goldman Sachs, opened Marcus as its consumer banking arm. And it's been very competitive on rates from the start. In fact, it's often one of the best-paying banks in the savings products category. Much of that is due to its status as an online-based bank, allowing it to save on overhead costs and pass those savings on to its customers. In addition, Marcus has loose requirements for opening an account, making its offer tough to beat. The savings account option from Marcus requires no minimum deposit to open and a $1 minimum to earn the APY. But Marcus provides more than just savings products to consumers. It also has a range of personal loan options, from debt consolidation to home improvement.

Perks: Along with a high interest rate, the savings account product from Marcus comes with easy-to-meet requirements and the benefits of an online bank. You can access your account at any time, and you'll pay no fees for transactions.

What to watch for: You won't find any branches at Marcus. And it also doesn't have a mobile app. That means you'll need to call customer service on weekdays or look at the FAQ section to get answers about your account. There's also no checking account option at Marcus, limiting your liquidity options.

American Express National Bank: 1.75% APY, $1 minimum balance for rate

Overview: Though American Express is known mainly for its credit card business, it's also making some waves in personal savings. Its online personal savings account competes heavily with other online banks — it has a solid rate and no fees. Plus, the account allows you to link up to three of your online banking accounts to the American Express platform, so there's no need to switch banks. The company also offers a range of highly competitive certificates of deposit, making it a serious contender among online banks.

Perks: The online personal savings account from American Express provides a competitive rate. It doesn't charge any monthly fees, and it doesn't require a minimum balance. The ability to link current bank accounts offers an easy solution if you have outside accounts that you'd like to view on one platform.

What to watch for: Similar to other online banks, American Express does not have any branch locations. If you're looking to talk to someone in person, you'll have better luck with another bank. It also isn't a full-service bank — there's no checking account option, for instance. And there's no mobile check deposit option — American Express reserves mobile apps for its credit card customers.

Discover Bank: 1.75% APY, no minimum balance for rate

Overview: While it's often thought of as a credit card company, Discover offers a full range of products. You'll find consumer banking opportunities, personal loans, student loans and even home equity loans. Its consumer banking products include savings, checking, money market, certificate of deposit and IRA options. Rates from the online bank are typically very competitive, easily topping brick-and-mortar institutions. Its online savings account, for instance, is often among the top-paying accounts in the country. And it requires no monthly balance or deposit to earn the APY.

Perks: A competitive rate and low fees make Discover's online savings account a very attractive option. But it's notable that Discover is also a full-service bank, offering a checking account and other consumer products. That's not something generally found at online banks. If you're looking for a one-stop shop for all of your banking needs, Discover could be a good fit.

What to watch for: Although Discover is a full-service bank, it has only one branch location. It makes up for that with mobile banking abilities. But if you're interested in a brick-and-mortar institution where you can make cash deposits, Discover may not be your best option.

Low Minimum Balance Savings Accounts

You can still save smartly using a savings account without having to maintain a high minimum balance. The experts at Bankrate have compiled our best savings rates for low minimum balance accounts. It is our goal to help users make the best financial decisions possible for spending budgets of all types.