5 [QA] Best Savings Accounts

What is a savings account? A savings account holds money that you don’t need for daily spending. Unlike most checking accounts, savings accounts earn interest — that’s money the bank adds to your account just for keeping it with the institution. The higher your bank’s savings account interest rate, the faster your balance will grow. What do the best savings accounts look like? The best savings account interest rates are close to 2.00% or higher. At a brick-and-mortar bank, you'll often find savings rates closer to the national average, which is currently 0.38%.

If you have a $5,000 savings balance, choosing an account that pays 2.00% will earn you about $100 in a year, while an account paying you the average would earn about $5. The difference increases the more you deposit and the longer you keep it in the account.

The best savings accounts also typically don’t charge monthly fees.

» Find out how your savings could add up with NerdWallet’s compound interest calculator.Why are all of NerdWallet's picks for best savings accounts online?It's easy to find a savings account at your local bank, but if you want to earn a high rate and pay the lowest fees, you should consider storing your savings online. Without the added expenses of large branch networks, online banks are able to offer more favorable returns than national brick-and-mortar banks.

» Learn more about NerdWallet's favorite high-yield online savings accounts. Is my money safe in an online savings account? Yes. All of the best savings accounts in NerdWallet's analysis are insured, just like bank accounts at national institutions. Most are insured by the Federal Deposit Insurance Corporation and others are insured by the National Credit Union Administration. Both cover up to $250,000 per depositor, per institution and per account type, in case your bank fails. Can savings accounts lose money? No. Unlike investment accounts, savings accounts are guaranteed not to lose money — provided your money is insured by the FDIC or NCUA. Whatever you put in an FDIC- or NCUA-insured account will stay there, unless your account charges fees (and, of course, unless you withdraw money). Why should I care about the best savings account rates? If you have money left in your checking account each month — or you can adjust your budget so that you do — you should have a savings account with a high rate. (Again, think around 2.00%.) It's always helpful to have money set aside for emergencies, and it'll earn you much more in an account that pays one of the best savings account rates than in a checking account.

Just make sure you can keep enough in your savings account to avoid monthly fees. Most online savings accounts don't charge these, but many traditional accounts do. Do the best savings account interest rates change over time? Yes, rates are variable and can change over time. The accounts featured in this article are among those with the consistently highest rates. When do savings rates change? Banks and credit unions generally don’t change savings rates on an hourly, daily or even monthly basis. In fact, it’s common to see APYs remain the same for several months.

It’s important to note, however, that rates are variable and theoretically can change at any time. In addition, many banks will change their rates based on what their competitors are doing. You will often see groups of banks increase or decrease their APYs at around the same time, especially if the Federal Reserve recently hiked or cut rates.

To get the best yield for your money, it’s a good idea to check out the best savings rates on a regular basis — at least once a month. Savings account terms you need to know: Savings account: A deposit account from a bank or credit union that earns interest.

Interest: Money a bank pays into an account over time.

Compound interest: Compound interest is the interest you earn on both your original money and on the interest you keep accumulating. In an account that pays compound interest, the return is added to the original principal at the end of every compounding period, typically daily or monthly. Each time interest is calculated and added to the account, the larger balance earns more interest.

Annual percentage yield: The annual percentage yield, or APY, is the amount of interest an account earns in a year. The calculation is based on the account’s interest rate and the number of times interest is paid during the year.

» Read more about 10 essential banking terms you need to know. Are there other ways to save money besides a savings account? Yes. Here are a few options:

Money market accounts: These accounts are a type of savings account, but they might have higher minimum balances and offer perks such as check-writing, which not all savings accounts do.

Certificates of deposit: These accounts lock your balance away for a specified period of time — often between one year and five years — in exchange for a higher interest rate. But if you withdraw any money during the term, you'll often have to pay a penalty. CDs are also covered by FDIC insurance.

Mutual funds: If you have a 401(k) through your job or an individual retirement account, or IRA, odds are you are putting some of your money in mutual funds. These are a type of investment that holds a little bit of many different types of stocks. Mutual funds are not covered by FDIC or NCUA insurance, and you can lose money on them — but you'll also typically earn a higher rate of return than you would on a savings account. They're best for long-term savings goals, such as retirement.