A savings account is a great place to park your cash. Whether you’d like to build up an emergency fund, save for a down payment, go on your dream vacation, or anything in between, a high rate is ideal. The higher the rate is on your savings account, the faster and easier you’ll find it to hit your savings goals.
Since the national average rate for traditional and online savings accounts is about 0.21%, it can be difficult to find options with 5% rates. The good news is there are some high yield savings accounts that pay out 5% or close to it. As long as you shop around and compare various products, you’re bound to find them.
Best 5% Interest Savings Accounts
We decided to do the heavy lifting for you and compile this list of the best 5% interest savings accounts. Keep in mind that some of the accounts we’ve included have interest rates that are approximately at the 5% mark.
1. Varo
Varo is a fintech company that acquired its own banking charter in 2020. While it operates like an actual bank, its banking services are offered online and through its app. Varo’s lineup of products includes checking accounts, savings accounts, cash advances, and tools to help improve your credit score.
Best of all, it offers early direct deposits and doesn’t charge common fees, such as monthly maintenance fees, foreign transaction fees, and transfer fees. Plus, it’s part of the Allpoint ATM network that can give you access to more than 55,000 fee-free ATMs across the country.
With a Varo bank account, you can lock in an annual percentage yield (APY) of up to 5.00% as long as you receive direct deposits of at least $1,000 per month. Any balances above the $5,000 threshold will earn 3.00% APY, which is still pretty good.
2. UFB Direct
UFB Direct is a division of Axos Bank with a focus on two products, including mortgages and saving accounts. Since it’s an online-only bank with low overhead fees, like most online banks, you can enjoy high rates on savings accounts and a mileage savings account.
While other online-only banks offer promotional savings rates for the first few thousand dollars you deposit, UFB Direct gives you 5.25% on your entire balance. Since research shows that UFB Direct boosts their interest rates every time the Fed does, we wouldn’t be surprised if this APY increases.
Not only can you earn 5.25% APY on your total balance, you may receive a free ATM card that makes it easy to withdraw cash. In addition, there are no monthly fee or minimum deposit requirements.
It’s important to note that sometimes when UFB Direct increases their interest rates under new account names, so older accounts will continue to receive the lower rate. If you contact customer service, you should have no issues closing your old account and opening a new one with a higher rate. Make sure you keep an eye on your account and UFB Direct’s rate hikes or you might miss out.
3. Current
Current has been around since 2015. It’s a fintech company that has partnered with Choice Financial Group and Metropolitan Commercial Bank to offer banking services. If you open a Current hybrid account that combines the features of an online savings and checking account, you may lock in 4% interest on the first $2,000 of each of your savings pods. Savings pods are features that can help you organize your savings goals.
Since you can enjoy up to three savings pods, you have the opportunity to earn a 4% interest rate on up to $6,000 of your savings. That’s pretty incredible, especially when you consider the fact you can open a Current account online in only two minutes. In addition to the hybrid account and impressive interest rate, Current offers other perks, like easy direct deposit access, budgeting and spending insights, no minimum balance requirements, and enhanced overdraft protection.
4. Salem Five Direct
Salem Five Direct is the online division of Salem Five Bank and specifically created for anyone who wants to bank online. While Salem Five Bank is headquartered in Salem, Massachusetts, there are 34 branches across Massachusetts and New Hampshire. If you open a Salem Five Direct eOne Savings account, you may lock in 5.01% APY on balances up to $1 million.
There is a minimum balance requirement or monthly fees but you will need $10 to open the account. Keep in mind that the Salem Five Direct eOne Savings account is reserved for new customers or account holders that don’t have a current checking or savings account with Salem Five Bank. Even if you live near a branch, the bank will require you to open an account online.
Furthermore, Salem will transfer any balances over $1 million to a traditional savings account or deposit account with a much lower APY of 0.01%. The Salem Five Direct eOne Savings account comes with several noteworthy perks, including free online and mobile banking, mobile check deposits, and text alerts.
5. Digital Federal Credit Union
Based in Massachusetts, Digital Federal Credit Union membership is available to anyone who donates $10 to Reach Out for Schools, a nonprofit that raises money for classrooms. It has more than 900,000 members and serves customers across all 50 states.
You may be surprised to learn that Digital Federal Credit Union’s Primary Savings Account comes with a 6.17% APY. But of course, this is not on your entire balance. You’ll only earn 6.17% on the first $1,000 in your account. After that, the annual percentage yield will go down to 0.16%.
If you’re new to saving, the Digital Federal Credit Union’s Primary Savings Account can give you the jump start you need. But if you know your balance will exceed $2,000, you may be better off with a different high yield savings account that pays a lower rate on your total balance instead of a small portion of it. If you do go with the DFCU’s Primary Savings Account, you can bank on the go with an intuitive mobile app and won’t have to worry about any monthly fees.
6.Netspend
Founded in 1999 and headquartered in Austin, Texas, Netspend is a technology company that specializes in reloadable prepaid debit cards that are not associated with existing bank accounts. These cards do not require a credit check and are free of activation fees or minimum balance requirements.
With Netspend, you can earn 6% APY on the first $1,000 in each of your Netspend accounts. Any balances above the $1,000 mark will only get an APY of 0.50%. The upside is you can open up to five high interest savings accounts for a total maximum balance of $5,000. Even though this might take some time and effort, it might be worth it when you consider that 5% APY is pretty rare.
To take advantage of Netspend’s high annual percentage yield, you’ll need to open the Netspend debit card first. Then, you can open any of these cards: Western Union Prepaid Debit Card, Ace Elite Prepaid Debit Card, Netspend MLB Prepaid Debit Card, and H-E-B Prepaid Debit Card. Your savings goals will dictate the right mix of cards.
After you apply for your Netspend account online, you’ll need to wait for your card to arrive in the mail. Once it does, activate the card and opt for the pay-as-you-go plan as this plan has higher usage fees but no monthly service fees that can interfere with the interest you earn. As soon as you activate your card, transfer money to your Netspend account via direct deposit from your external bank account.
You should know that if you don’t use your account for too long, you may have to pay an inactivity fee. That’s why it’s a good idea to enroll in automatic transfers of $1 or so every few months. Once you set up your first card, repeat the process for the remaining four cards.
7. Blue Federal Credit Union
Based in Cheyenne, Wyoming and founded in 1950 by a group of civilians at F.E. Warren Air Force Base, Blue Federal Credit Union serves the military community through five branches. If you’re not affiliated with the military, you can still join. Just make a $5.00 donation to the Blue Foundation.
So, why is Blue Federal Credit Union worth considering? Its Accelerated Savings account offers a 5.50% APY on balances of up to $1,000. Unfortunately, the APY rate drops to 2.08% once you exceed $1,000. But you can earn anywhere from 0.25% to 2.08% on your balances, depending on how high they are.
8. MySavingsDirect
The online division of Emigrant Bank, which is based in New York, MySavingsDirect provides better interest rates than you might find at a traditional brick-and-mortar bank with physical branch locations. The MySavings Direct MySavings Account is a no-frills online savings account that offers 4.35% APY on all balances. You won’t have to worry about a minimum deposit requirement or monthly service fees.
However, you might not be able to use MySavings Direct for all your banking needs as it only offers two products: the high yield savings account and certificates of deposit (CD). Moreover, there is no mobile app so you’ll have to perform all of your activities online through its website, which is a bit outdated.
9. Landmark Credit Union
Headquartered in New Berlin, WI, Landmark Credit Union has 34 branches across Wisconsin and Illinois. It’s also part of CO-OP Shared Branches and has more than 5,000 branches in its portfolio.
If you live or work in one of the counties Landmark serves, you can become a member and open a Premium Checking account with a minimum $5 deposit. The Premium Checking account opens the doors to an incredible 7.50% APY, which is unusual for savings account rates at other places. However, this remarkable rate only applies to balances of up to $500. But there is no minimum balance required or monthly services fees.
10. Mango Money
Mango Money is a lot like Netspend savings account as it offers prepaid cards and the chance to open an online savings account. As long as you have a Mango Prepaid Mastercard, you can also get the Mango savings account with as little as $25, which pays 6% APY on up to $2,500. To be eligible for the 6% APY, you’ll need to make at least $1,500 in “signature purchases.”
Signature purchases are made at a point of sale where the merchant secures an authorization without using your PIN. In addition, you’ll have to show at least $25 in your savings account on the last day of the month. You can expect any balance that exceeds the $2,500 initial deposit to earn 0.10% interest.
There are numerous ways you can add funds to your Mango Money account. You can set up monthly direct deposits, use PayPal, link to a bank account, or deposit cash at Green Dot retailers, such as CVS, Walgreens, Rite Aid, Walmart, and 7-Eleven. In addition to the 6% APY, Mango Money offers a robust mobile app you can use to manage transfers, view balances and recent transactions, and more.
11. Consumers Credit Union
Michigan-based Consumers Credit Union is open to anyone who lives, works, or worships in the Lower Peninsula. The credit union offers a number of financial products and services, including a Rewards Checking account with a 3.00% APY on balances of up to $10,000.
The APY drops to 0.020% for any amount over $10,000. If you meet other requirements, you may even be able to score an APY of up to 5.00%. Fortunately, there are no minimum deposit requirements and perks, like fee-free ATM access as well as discounts to local stores and restaurants.
12. T-Mobile Money
Launched in 2018, T-Mobile Money is a digital banking platform by T-Mobile, BMTX, Inc. and Customers Bank. If you’re already a T-Mobile customer, you can earn a 4% APY on its checking account on balances of up to $3,000. Yes, we know this is a checking account and our list is mostly high yield savings accounts, but 4% is so great that we just had to add this as an option. Once you exceed $3,000, you’ll get a 1% APY on your balances.
With a T-Mobile Money checking account, you don’t have to worry about any minimum deposits or fees, such as monthly maintenance fees, ATM fees, and overdraft fees. You can easily withdraw cash for free as T-Mobile Money is part of the Allpoint ATM network. Additionally, you can use the mobile app to deposit mobile checks, pay bills automatically, and more.
13. Crypto Savings Accounts
Yes, crypto savings accounts aren’t traditional but they might make sense, depending on your situation. Here’s how they work: You act as an investor and use a crypto platform to take out a low-interest loan against your crypto holdings. This will give you access to immediate cash and enable you to preserve your assets long term.
Of course, there are several downsides to this strategy that you should consider. First, your account won’t be insured by an FDIC insured bank or any other government program. Furthermore, some platforms are not available for U.S. investors and not all of them compound interest.
In addition, there may be transaction costs that are a lot like ATM or ACH fees. Before you open a crypto savings account, weigh the pros and cons to make sure it’s worthwhile.
14. U.S. Treasury I Bonds
U.S. Treasury I Bonds are not savings accounts but offer a safe place to store your cash and earn a high APY. Issued by the U.S. Treasury, these bonds earn interest that’s a combination of a fixed rate and variable inflation rate. While the fixed rate always stays the same, the variable inflation rate changes every six months or so.
When you purchase a bond, you have to lock your money in for a year and you won’t know what interest rate or how much interest you’ll earn in the second six-month period. Also, if you withdraw any funds sooner than 5 years, you’ll be on the hook for a 3-month period.
Ideally, you’d invest in I bonds at the end of the month. This is because interest is paid as if you purchased on the first of the month, regardless of when you actually purchased.
How to Choose a 5% Interest Savings Account
As you can see, not all 5% interest savings accounts are created equal. While it may be tempting to go with the first one you find, it’s in your best interest to shop around, compare your options, and consider the following.
- Restrictions: In a perfect world, every high yield savings account would give you a 5% APY on your entire balance. Since this often only applies to a portion of your balance and you must meet certain requirements to earn it, it’s important to read the fine print. Otherwise, you may go through the hassle of opening an account and later find out that the 5% APY is only for your initial $1,000.
- Fees: Many banks, credit unions, and online lenders charge fees. These may include monthly maintenance fees, overdraft fees, and AM fees. Do your best to choose an account with minimal to no fees. High fees can get in the way of your savings goals and defeat the purpose of a high annual percentage yield.
- Reviews and ratings: There are countless savings account or savings builder account options out there but not some are more reputable than others. Explore reviews and ratings from current and past customers so that you understand the overall customer experience.
- Perks: You can often score some great perks in addition to a high APY. Some examples of these perks are complimentary debit cards, free credit score monitoring, and exclusive discounts. Perks can help you choose one account over another.
- Member FDIC or NCUA insurance: FDIC-insured banks and National Credit Union Administration or NCUA-insured credit unions can give you some much-needed peace of mind. In the unlikely event something happens to the bank or credit union, you won’t lose all the money you worked so hard to earn.
How to Apply for a 5% Interest Savings Account
Once you hone in on the ideal 5% interest savings account, it’s time to apply. The good news is most financial institutions let you do so online, from the comfort of your own home and office. In most cases, the process takes 15 minutes or less.
While every bank, credit union, or online lender has their own application, most will ask you for basic personal details, like your name, address, phone number, and Social Security number. You might also have to upload a government-issued ID, like a passport or driver’s license to confirm your identity.
Once you open an account, deposit the appropriate amount of funds. Note that some high yield savings accounts will require you to deposit a certain amount to take advantage of the high APY. Depending on the financial institution, you may be able to make a deposit via direct deposit, PayPal, or cash.
High-Interest Savings Account Alternatives
If you can’t find the right 5% interest savings account or high interest savings accounts for your situation, don’t fret. There are other ways to save money and meet (or even exceed) your savings goals. Here are a few options you might want to consider.
CDs
A certificate of deposit or CD is a savings account that usually comes with a fixed interest rate and fixed date of withdrawal. It is considered a safe investment because it offers a guaranteed return and earns higher interest rates than most checking, savings, and money market accounts. If you have longer-term money that you’re unlikely to touch and don’t like surprises, a CD should be on your radar.
You may enjoy fixed rates and terms that give you the peace of mind of knowing exactly how much money you’ll earn over a specific time period. Just remember that if you opt for a traditional CD, you will not be able to withdraw your money early unless you pay a large penalty. In addition, you might risk earning less than the rate of inflation if inflation increases and you go with a longer-term CD.
Money Market Accounts
A money market account is essentially a hybrid between a checking and savings account. Once you open one, you can write a certain amount of checks each month and even make purchases with a debit card. The main advantage of a money market account is that it typically earns a higher interest rate than a checking or savings account.
But you may have to meet monthly minimum deposit requirements or pay a monthly maintenance fee or monthly service fee. Furthermore, there will likely be a limit on how many transactions you can make each month. Typically, money market accounts only allow for six withdrawals, account transfer, debit purchases, and check payments per month. If you exceed this limit, you might be charged a penalty.
High Yield Checking Accounts
Recently, high yield checking accounts, which are often offered by online banks with high-yield savings accounts and traditional savings accounts have increased in popularity. A high yield checking account is basically a traditional checking account with a higher rate. But to lock in the highest interest rates, you must meet certain requirements, which vary by institution.
Usually, however, you’ll need to commit to a set number of debit transactions per month and enroll in online banking or the online bank. High-yield checking account annual percentage yields range from 1.25% and 5%, compared to a 0.03% annual percentage yield, which is fairly on a traditional checking account.
401(k) Plans
If you hope to retire one day, you likely know about 401(k) plans. A 401(k) can help you save the money you need to enjoy your golden years away from the workforce. If your employer offers a 401(k) plan, you may enroll as long as you meet the eligibility requirements. Before you contribute to it, you’ll need to determine whether you want a Traditional 401(k) or Roth 401(k) and consider how much you want to save.
With a Traditional 401(k), you make pre-tax contributions. Your contributions will reduce your tax burden. You won’t pay any taxes on the money you contribute or your investment growth until you begin to withdraw from your account in retirement. When you do so, the funds will be taxed as if they’re regular income.
If you go with a Roth 401(k), you’ll make your contributions after you’ve paid tax on your income. Your money will grow tax-free and you won’t be responsible for paying any money on the amount you withdraw during retirement. You have the freedom to choose how much you contribute to your 401(k). Keep in mind, however, that the IRS sets maximum contributions every year.
Self-Directed IRAs
A self-directed IRA is a lot like a standard IRA. You fund the account and watch it grow so you can retire one day. The difference between these two products, however, is the types of investments you can make. A standard IRA limits your investment options to stocks, bonds, mutual funds, and CDs.
With a self-directed IRA, you can invest in just about any alternative asset, such as real estate, cryptocurrency, and promissory notes. You may choose from a traditional self-directed IRA and Roth self-directed IRA, which has its own tax advantages.
Cash Management Accounts
A cash management account can be a suitable alternative to a traditional checking or savings account, especially if you’d like to deposit a large sum of cash. Offered by brokerages and robo-advisors, cash management accounts keep your money safe while earning high interest.
These accounts are known for a variety of benefits like higher Federal Deposit Insurance Corp or FDIC insurance limits plus banking services, such as direct deposit, online bill pay, access to third-party payment sites, and fee-free ATMs. You can think of them as hybrids between checking and savings accounts.
Bottom Line
A 5% interest savings account can come in handy if you’d like to expedite your savings goals. But 5% can be a challenge to find. Therefore, you might have to settle for an annual percentage yield that’s a bit lower or explore alternative savings options. Best of luck with your savings goals!
