Many banks and credit unions are competing for your business — each offering bank accounts with unique features and benefits. The right account can make your life easier, save you time and money, and help you reach your goals faster. So, it’s important to weigh your options before picking the best one.
As you do your research, two factors might stand out among the best bank accounts: fees and interest rates.
Ideally, you want to earn as much interest as possible and avoid fees where you can. Doing so means more money in your pocket — and less in the bank’s. However, you may have to compromise on one to get the other.
Here’s a look at how to prioritize high interest and low fees — and how to determine which is more important.
When it comes to bank accounts, certain account types are known for earning high interest rates. While checking accounts are useful for managing everyday transactions, high-yield savings accounts (HYSAs), money market accounts (MMAs), and certificates of deposit (CDs) are generally designed to encourage saving money by offering higher interest.
Here’s a look at how these accounts work and how much interest you can expect to earn with each.
A high-yield savings account works like a traditional savings account, but instead of earning rock-bottom rates, you can earn meaningful interest on your deposits. Often, you can find HYSAs at online banks — because these banks don’t have to maintain and staff physical branches, they can afford to pay customers higher rates on their savings accounts. Currently, the best high-yield savings accounts can earn more than 4.3% APY.
Money market accounts blend savings and checking features into one account. They may come with a debit card and checks for convenient and frequent access, but they also earn interest — often at higher rates than traditional savings accounts. At the time of writing, the best money market accounts can earn up to 4.5% APY. Keep in mind that many MMAs have high minimum balance requirements.
CDs offer less liquidity than most other deposit accounts because they lock up your funds for the duration of the CD’s term. However, they often come with competitive interest rates in exchange for your commitment. Currently, the best CD rates on the market top 4.5% APY.
Unfortunately, earning a high interest rate may come with a price.
Monthly maintenance fees are a common charge to look out for, especially among money market and savings accounts. Sometimes, you can get these fees waived by maintaining a certain balance or signing up for direct deposit.
Other bank fees you may come across include wire fees, excess withdrawal fees, and overdraft fees. Because MMAs often come with debit cards and ATM access, they may also charge ATM fees and foreign transaction fees.
Early withdrawal penalties are common with CDs. Banks usually charge them if you make a withdrawal from your CD deposit before the account matures.
Finally, all three account types — HYSA, MMAs, and CDs — may come with paper statement fees. But you can easily avoid this fee by signing up for e-statements.
To know whether high interest rates are worth the fees, you have to run the numbers. Here’s a simple example:
Say you’re considering a high-yield savings account that earns 3.5% APY. It also comes with a monthly maintenance fee of $10. You have $5,000 you want to deposit into the account, and using a savings calculator, you determine you’ll earn $14.35 in the first month. With a $10 monthly fee, you’re still up $4.35.
However, say you only have $1,000 to deposit. In that first month, you’ll earn just $2.87 in interest — but you’ll lose $10 to your monthly fee.
As this example illustrates, your savings account balance, interest rate, and fees all affect how much you can expect to earn. Ultimately, it’s important to choose an account with both low fees and competitive interest rates.
Here are some considerations to think about when you’re weighing accounts with high interest and low fees:
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Your balance: The higher your balance, the more interest you’ll earn. With a high enough balance, certain fees may feel negligible — or they may be waived by the bank.
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How likely you are to need your money: If you put your money in a CD, you should be confident you won’t need it until your CD matures. This ensures you won’t have to pay early withdrawal penalties.
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How often you make transactions: Some HYSAs and MMAs charge excess transaction fees beyond monthly limits. Whether or not you exceed these limits can determine how much you’ll lose to fees. If you need to make frequent transactions, choose an account with no limits.
When it comes to savings accounts, high interest is better. Earning interest on your savings account helps your balance grow, so the more you earn, the better. However, with debt products — like credit cards, loans, or lines of credit — lower interest rates are better. That’s because when you borrow money, you’re paying interest, not earning it.
Generally, bank accounts with higher interest rates are better because they increase your ability to save. But you have to weigh the interest-earning potential with other factors — such as fees, accessibility, and minimum balance requirements — to determine if a particular account is worth it.
CDs and savings accounts both have advantages for savers, but they serve slightly different purposes. For example, savings accounts are highly accessible. While your bank may impose monthly transaction limits, you can generally withdraw money from your savings account whenever you want. CDs, on the other hand, may earn higher interest rates, but you typically can’t touch your money until the CD matures. If you want flexible access to your funds, choose a savings account. If you want higher interest and don’t mind locking up your money for a period of time, a CD may be a better choice.
