What Is a Tiered Savings Account?

What Are Tiered Savings Accounts?

Tiered savings accounts offer multiple annual percentage yields (APY) based on the amount you save. As your balance grows, your interest rate increases, allowing you to earn more by saving more. APYs on tiered-rate accounts vary widely by institution, but the best rates are reserved for the largest balances. It's not uncommon to need $100,000 or more to qualify for the highest rates.

How Do Tiered Savings Accounts Work?

Tiered savings accounts provide a safe place to stash your cash until you need it, but it's important to understand how they work to make the most of one. Here are some key features tiered savings accounts offer.

• Variable APY: Rates may increase or decrease based on the market and aren't guaranteed. This can work in your favor when rates are rising, but when they're falling, you may earn less than anticipated.
• Transaction requirements: You may need to complete a specific number of transactions each month.
• Minimum balance requirements: Accounts typically have a minimum opening balance requirement, and you'll likely need to meet minimum daily balance requirements to avoid a maintenance fee.
• Fees: If you're unable to consistently meet the account's minimum daily balance requirements, your bank or credit union may assess fees that could erase any gains you've earned.

Here's a sample breakdown of how interest might accrue on a tiered-rate savings account:

Pros and Cons of Tiered Savings Accounts

Tiered savings accounts can help improve your bottom line, but it's essential to be aware of the drawbacks before opening one.

Should You Use a Tiered Savings Account?

Whether a tiered savings account is right for you depends on a few factors, including:

• Your cash flow needs: If you need easy access to larger sums of cash, a tiered savings account can help improve your returns while keeping your funds liquid and protecting your money from the volatility of riskier investments like the stock market.
• Your financial goals: A tiered savings account may be a good option when saving for short- or mid-term goals like an emergency fund or a down payment for a house. If you're saving for retirement, however, investments with better earning potential may be a better option. Just keep in mind that the higher potential returns come with greater risk.
• Your current savings: If you don't have enough cash saved to qualify for a higher APY, moving your money to a tiered savings account may not make sense.

Here's a look at how the amount you have saved affects the amount you can earn:

Alternatives to Tiered Savings Accounts

Tiered savings accounts aren't the only low-risk way to earn more on your savings. Alternatives that offer better returns than traditional savings accounts and provide FDIC- or NCUA-protection include:

• High-yield savings accounts (HYSAs): With an HYSA, your interest rate doesn't change no matter how much you keep in your account. Rates may even be higher than a tiered savings account, and there are typically no minimum balance or transaction requirements.
• Money market accounts: Money market accounts combine features of savings and checking accounts. They often come with checks and a debit card, making them a good option for an emergency fund because you can pay for unplanned expenses directly from the account.
• Certificates of deposit (CDs): When you open a CD, you make a single lump-sum deposit instead of making regular contributions over time. In exchange for keeping your money in the account for a specific amount of time, rates are typically higher than traditional savings accounts. Terms generally range from one month to 10 years.

Choose the Best Savings Account

For savers with large balances, tiered savings accounts can help you earn a bit more while your money is sitting. But high-yield savings accounts, money market accounts and CDs might offer comparable returns while keeping your money safe until you need it.

When selecting an account, consider how you plan to use the money, when you might need it and how quickly you want to be able to access it. Shopping around to compare APYs, deposit requirements, account capabilities and fees can help you find the best savings account for your individual situation.

If you're thinking about opening a high-yield savings account, the Experian Smart Money^™ Digital Savings Account offers competitive APYs^|| based on your Experian membership status with no monthly fees^¶, minimum balance or direct deposit requirements. You can get an Experian Smart Money Digital Savings Account through your free or paid Experian membership, which also gives you access to your FICO^® Score^Θ, Experian credit report, credit monitoring and more. See terms at experian.com/legal.