Lincoln is an investor and content marketer. He has worked for financial advisors, institutional investors, and a publicly-traded fintech company. Lincoln holds degrees in Finance, Economics, and Accounting.
In 2024, you can open a savings account paying 5% interest.
But it’s a trap.
Most of the highest-paying savings accounts will only pay their teaser rates on the first $500-$1,000 you invest, then pay a ridiculously low 0.25% APY on the rest of your cash.
Assuming you have more than $1,000, you’re much better off with a bank that pays 4% interest on unlimited cash.
For instance…
That means a $10,000 deposit in M1 Finance will pay you $500 in interest each year, whereas NetSpend (which has a teaser rate of 5% for the first $1,000 and 0.50% on the rest) will earn you just $95 annually.
In this article, I cover the 6 best 5% interest savings accounts in 2024. Use these accounts to combat inflation while generating meaningful returns without any risk.
Which bank has the highest interest rate?
The bank with the highest interest rate is UFB Direct, even though it doesn’t offer a 5% interest savings account.
This is because the UFB Best Savings account currently pays unlimited 4.21% APY. There’s no account opening or maintenance fees either. For most people, this beats any of the usual bank bonus offers.
In contrast, most 5% interest savings accounts drastically reduce your APY after the first few thousand dollars. This means larger sums earn much less than if your entire deposit was with a high yield savings account like UFB Best Savings.
Here is a table showing the highest APY savings accounts, along with the actual total interest you would earn if you deposited $10,000:
Savings Account | APY | Total Interest Earned Annually | Learn more |
5% | $405 | ||
3% on the first $10,0000.25% on balances after that | $300 | ||
4.21% | $421 | ||
5% on the first $5,000; 3% on balances after that | $400 | ||
4% on $6,000 in total | $240 | ||
5% on $1,000 in total; 0.50% on balances after that | $95 |
Pros and cons of a 5% interest savings account
If you want to maximize your spare cash while maintaining liquidity, you should use banks with the highest interest rates. But there are several downsides investors should know before making a deposit:
Pros:
- Cash Accessibility: Unlike bonds or fixed-income investments, a high yield savings account lets you withdraw your money without paying penalties.
- Low Deposit Requirements: Many banks with the best interest rates don’t have minimum account requirements. And ones that do often require low amounts like $500 to $1,000 to open an account.
Cons:
- Account Requirements: Certain banks with 5% interest rates require using a prepaid card to unlock the highest APY. And some banks require a minimum monthly direct deposit.
- Interest Caps: Most 5% APY savings accounts cap the maximum interest rate at $1,000 or $5,000 at most before plummeting the rate.
1. M1 Finance
Overall rating: ⭐️⭐️⭐️⭐️⭐️
- Account minimum: None
- APY: Up to 5%
- Actual annual interest earned on $10,000: $500
- Fees: Requires M1 Plus membership, which is free for the first 3 months, then $10/month after
With M1 Finance, you can earn up to 5% APY. That’s incredible!
The one catch? You’ve gotta be an M1 Plus member to get that rate. It’s free for the first 3 months, but then it’s $10 after — unless you refer a friend, in which case you get 6 months free.
But M1 Plus membership might not be such a bad thing, especially if you’re interested in stock and ETF investing too.
Pros
- Access to stock and ETF trading
- Access to other financial features like custodial accounts, IRAs, personal loans, and more
Cons
- Must be an M1 Plus member to get the best rates
2. Aspiration Spend & Save Account
Overall rating: ⭐️⭐️⭐️⭐️
- Account minimum: $10
- APY: Up to 3%
- Actual annual interest earned on $10,000: $300
- Fees: Aspiration Plus costs $7.99 per month
Aspiration Spend & Save gives you the flexibility of a checking account with the APY of a high yield savings account. However, to unlock the maximum 3% APY, there’s a few catches.
Firstly, you have to be an Aspiration Plus member, which costs $7.99 per month or $5.99 per month if you pay annually. You also have to spend at least $500 per month with your Aspiration debit card.
Regular Aspiration customers only earn 1% APY. Also note that both these interest rates cap on your first $10,000. Afterwards, interest drops to 0.25% on excess funds for Aspiration Plus customers while regular customers stop earning altogether.
That said, Aspiration has a range of perks that can make spending worth it. For example, you can earn up to 10% cash back by shopping at sustainable companies in its Conscience Coalition program. And, you get free ATM withdrawals at 55,000+ Allpoint ATMs.
Pros
- Earn up to 10% cash back at partner brands
- Enjoy other perks like two-day early direct deposits
Cons
- You have to pay a membership fee to unlock the highest APY
- APY drops significantly after $10,000
3. UFB Direct
Overall rating: ⭐️⭐️⭐️⭐️
- Account minimum: $0
- APY: 4.21%
- Actual annual interest earned on $10,000: $421
- Fees: None
UFB Direct offers one of the best high interest savings accounts without muddying the waters with cash limits and variable APYs.
With UFB Best Savings, you earn 4.21% APY on all balance tiers. There’s no minimum deposit or direct deposit requirement to unlock this rate either. And account holders get other perks like mobile check deposits and an ATM card.
Pros
- No requirements to unlock the highest interest rate
- UFB Best Savings doesn’t reduce its APY on different balance tiers
Cons
- Many competing 5% interest savings accounts earn more for small balances
- Not super user-friendly
4. Varo
Overall rating: ⭐️⭐️⭐️⭐️
- Account minimum: $0
- APY: Up to 5%
- Actual annual interest earned on $10,000: $400
- Fees: None
With Varo’s savings account, your base interest rate starts at 3% APY. But you upgrade to 5% APY on up to $5,000 if you receive direct deposits of at least $1,000 per month and end the month with a positive balance.
If you set up direct deposit from your job to your Varo account, this $1,000 monthly requirement is manageable. And Varo still pays you 3% APY on funds exceeding $5,000, which is a fairly competitive rate.
Pros
- Varo doesn’t charge any fees
- Varo doesn’t lower APY as much as many competitors once you exceed $5,000
Cons
- Monthly direct deposits are necessary to earn 5% APY
5. Current
Overall rating: ⭐️⭐️⭐️⭐️
- Account minimum: $0
- APY: 4%
- Actual annual interest earned on $10,000: $240
- Fees: None
Current is a popular mobile banking solution that originally catered to teenagers with its fee-free checking account.
These days, Current is a more robust banking solution, offering both a checking and savings account as well as cryptocurrency investing.
For its savings account, Current lets you open three “savings pods” with a maximum deposit limit of $2,000 each. You earn 4% APY on each savings pod, so it’s a fairly competitive interest rate for parking up to $6,000.
However, Current is better than many 5% interest savings accounts in the short-term because of its $50 welcome bonus. To qualify for this bonus, enter the code ‘WELCOME50’ when signing up and add a qualifying direct deposit of at least $200 within 45 days.
Pros
- Current’s spending account provides perks like two-day early paycheck deposit and cash-back rewards
- Low direct deposit requirements for the $50 welcome bonus
Cons
- Current caps total savings deposits at $6,000
6. NetSpend
Overall rating: ⭐️⭐️⭐️⭐️
- Account minimum: $0
- APY: 5%
- Actual annual interest earned on $10,000: $95
- Fees: None
If you’re a NetSpend customer, you can open a NetSpend Savings Account and earn 5% APY on up to $1,000. You earn 0.50% APY on funds exceeding $1,000, and this account doesn’t charge any monthly fees.
You have to have a NetSpend PrePaid Debit card to open this savings account. There’s no other requirement, but the $1,000 limit means NetSpend is best for smaller sums rather than your main investment portfolio.
Pros
- No fees or direct deposit requirements to earn 5% APY
Cons
- NetSpend has one of the lower cash limits for its maximum interest rate
Final Word: The Highest APY Savings Account Doesn’t Actually Offer 5% Interest Rate
The highest APY savings accounts aren’t usually the ones with the highest interest rates unless you maintain a balance of only a few thousand dollars.
This is because these banks typically limit the 5% interest rate to small balances and then drastically reduce interest rates on additional cash. So, for balances exceeding $5,000, options like M1 Finance and UFB Direct are your best bet.
There’s still money to be made with these 5% interest savings accounts, especially if you leverage welcome bonuses from companies like Current. If anything, park most of your savings in an account that doesn’t limit cash and move smaller amounts of cash around to take advantage of higher rates elsewhere.
FAQs:
Are there any savings accounts that pay 5% interest?
Yes, savings accounts from companies like NetSpend and Varo pay 5% interest. However, these accounts limit this rate at $1,000 and $5,000 respectively.
What bank currently has the highest savings interest rate?
Primis Bank currently has one of the highest savings rates of 5.03% APY. M1 Finance and UFB Direct also have some of the highest interest rates, outside of credit unions.
Are there 6% or 7% interest accounts?
You can sometimes find 6% and 7% interest accounts, but this usually means working with a credit union rather than a bank. For example, Landmark Credit Union currently pays 7.25% APY for its premium checking account.
The downside is that credit unions usually serve specific areas and have various membership requirements, so they’re not accessible to everyone.
Is 1% APY on a savings account good?
These days, 1% APY on a savings account isn’t good. The leading banks pay around 3% to 4% APY, with special bonuses and promotions making 5% APY or higher possible as well.
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