Which Type of Savings Account Pays the Highest Interest?

Quick Answer

Certificates of deposit typically offer the highest interest rates compared with money market accounts and savings accounts. However, you'll be required to lock up your deposits for a set period of time to earn the better rate.

Woman calculating savings account interest rates.

If you're looking for a place to stash some cash for short-term financial needs and goals, it's important to choose the right savings account for your situation. Different types of savings accounts offer varying interest rates, but there are other features to consider before you determine the best option for you. In addition to standard savings accounts like the ones you may already have, certificates of deposit (CDs) and money market accounts can give you a cash return in the form of interest. Read on to learn more about these types of savings accounts and which one might be best for you.

Which Types of Savings Accounts Pay the Most Interest?

In general, financial institutions offer three different types of savings accounts: CDs, money market accounts and standard savings accounts.

Certificates of Deposit

CDs tend to offer the highest interest rates of the three main types of savings accounts. However, these deposit accounts typically require you to hold your funds in the account for a specific term.

If you withdraw your money early, you may be subject to an early withdrawal penalty, which could wipe out your interest savings and potentially even reduce your principal balance.

Interest rates and terms can vary by financial institution, but if you want to maximize your return, you may need to give up access to your money for anywhere between six months and two years. Once you open an account and make a deposit, your interest rate will be fixed for the full term.

Savings Accounts

Standard savings accounts can be broken down into two types: traditional and high-yield savings accounts:

Unlike CDs, savings accounts don't have a fixed interest rate. Instead, your rate can fluctuate as market conditions shift. You'll be able to access your money anytime you want, however, typically via transfers between your checking and savings accounts. Some banks may also give you an ATM card.

Just keep in mind that if you make more than six withdrawals in a month, many banks may charge you a fee for each additional withdrawal that exceeds that threshold.

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Money Market Accounts

Money market accounts act as a hybrid between a checking and savings account. In most cases, you'll get a debit card and check-writing privileges. At the same time, you may get a higher interest rate that, in some cases, can compete with high-yield savings accounts and some CDs.

While you'll have easier access to your funds than with a standard savings account, some financial institutions may enforce a monthly withdrawal limit with the money market accounts they offer. These accounts may also come with a monthly fee or a high balance requirement.

How Do You Choose the Right Savings Account?

Maximizing your interest earnings may be a top priority, but there are several factors to consider before deciding which type of savings account you should choose.

Time Horizon

Think about when you'll need access to the funds. If you're building an emergency fund, for instance, you'll want ready access to the money, making standard savings accounts and money market accounts—preferably ones with high yields—more attractive.

However, if you don't need access to your money for several months or years, a CD can be a good way to lock in a high interest rate.

Ability to Save

Unlike money market accounts and CDs, standard savings accounts typically don't have minimum deposit or balance requirements. If you're just starting out on your savings journey or you generally can't save a lot right now, you may be better off with a high-yield savings account.

Need for Flexibility With Funds Access

If you have both a checking and savings account with the same financial institution, accessing your money can be as easy as making a quick transfer then using your debit card or writing a check.

However, if you want to get the best interest rate available, you may need to open an account with another bank or credit union, and transfers between financial institutions can take a few days. In this instance, a money market account can allow you easy access to your funds without needing to transfer them to a checking account first.


Standard savings accounts and CDs typically don't charge monthly fees, but monthly service fees are more common with money market accounts. If you can meet the requirements to avoid the fee, a money market account can still be worthwhile.

However, if you believe your savings account balance may fluctuate, an account with a potential fee tied to your balance may not be the right fit.

When Should You Consider Investing Instead of Saving?

In most cases, savings accounts can be a great way to keep your money safe for a short-term goal, such as an emergency fund, vacation or a down payment.

However, there may be situations where it makes more sense to invest some of your cash to take advantage of better returns. In particular, here's where investing instead of saving might make sense:

  • You have long-term financial goals, such as retirement or education planning.
  • You've already met all of your short-term financial goals.
  • You want a good mix of short- and long-term financial planning.

Depending on your investment goals, you can opt for an individual retirement account or a standard brokerage account. Mutual funds and exchange-traded funds can be a great place to start because they can help you diversify your portfolio from the start. Over time, however, you may also opt to invest in individual stocks, real estate and other options.

Pros and Cons of Investing vs. Saving

It's important to keep in mind that investing your money carries more risks than saving it. While you typically don't have to worry about losing money in a savings account, it's possible for that to happen in an investment account, especially if you don't diversify well.

That said, savings accounts, money market accounts and CDs often don't offer a high enough return to outpace inflation, so they don't offer good long-term returns.

As a result, it's important to take your time to consider your financial needs and goals before making a decision about your money. You may even consider consulting with a financial advisor to get some guidance for your situation.

The Bottom Line

Where you put your money can have a big impact on your financial plan. Depending on your financial situation and your goals, take your time to research and compare several options to determine the best fit for you.

Also, consider allocating some of your monthly cash flow toward investments, even if it's only a little each month, to work toward a balance between short-term needs and long-term goals.

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