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If you’re looking for the best way to save money, you’ve probably stumbled across friends, banks, or articles recommending high-interest savings accounts – a type of interest-bearing accounts. But you may be wondering how to choose a high-yield savings account, savings account interest rates, or about high-interest savings account pros and cons.

There’s a plethora of different types of savings accounts, all of which can be geared towards a particular goal. If you have questions, such as, “What’s the difference between an interest-bearing account and a regular savings account?” “What does APY mean?” “What is a CD account?” “What is a Money Market Account?” We’re here to help.

In this article, we’ll explore what a high-interest account and other interest-bearing accounts are, how they work, and when they may be the best solution for your needs.

What is a high-interest savings account?

First, an interest-bearing account is an account at a bank or financial institution that earns interest through Annual Percentage Yield, or APY.

APY is the amount of interest that can be earned on an account on an annual basis and is used to calculate the return on interest-bearing accounts. In other words, it’s the interest your deposited funds earn within a calendar year. APY takes into account compounding interest, allowing you to maximize your savings. Over time, this can add up to a significant amount – which is one reason financial experts recommend you try to avoid dipping into your savings.

And, unlike stocks and exchange-traded funds, your interest-bearing account balance isn’t vulnerable to the ups and downs of the market. This provides an extra level of security for those wanting to preserve their nest egg.

Most banks offer several different interest-bearing accounts to help you save money effectively – the most common of which is a standard savings account. This is a great choice if you want a starter account with a low deposit and tiered interest rates.

So, what’s special about savings accounts with high-interest rates? Like other interest-bearing accounts, a high-interest account allows you to accrue a certain percentage of interest on the amount you have deposited.

With a regular savings account and most other monthly savings accounts that interest rate – and therefore the amount accrued – may be relatively modest – on average less than 1 percent.

But with a high-interest account, you can earn even more bang for your buck, as this account type carries a higher-than-average interest rate.

First Merchants offers high-interest accounts like a Money Market Savings account, which requires a larger initial deposit but also delivers higher interest. It’s high-interest but still functions like a regular savings account, which allows you to earn interest based on your account balance while still granting unrestricted access to your funds. In a Money Market Account, interest is earned daily and credited to the account monthly.

Another type of interest-bearing account has a familiar acronym: it’s called a CD – but it doesn’t stand for “compact disc.” So, what is a CD? In this case, CD means Certificate of Deposit, a special, high-yield account that can pack a punch when it comes to saving for the future.

These accounts typically require an initial deposit anywhere from $1,000 and up – and restrict account access for a particular period of time. However, they also offer higher interest rates than many other savings options, so are among some of the best ways to save money. Some CDs, like our Smart Saver CD, allow you to make a smaller initial deposit with minimum monthly deposits throughout the term of the account. In a CD, interest accrues daily and is credited monthly.

What is an interest-bearing savings account – including the interest-bearing savings account definition? We’ve got the run down.

Compare regular savings accounts with a high-interest account type.

Best uses for a high-interest savings account

So, when is a high-interest account the best choice for you? Because of the high rate of return, a high-interest account is a great choice when you’re saving up for a big expense but have a short-term window.

A high-interest account is a great option if you’re:

  • Getting married: The high costs and planning time many weddings require make a high-interest account an ideal way to save up. Set up an account when you begin your wedding planning – or before – and you’ll have a little extra to work with on the big day.
  • Saving up for a downpayment: Add a little extra boost to your downpayment by setting the money aside in a high-interest account a few months before you plan to begin your house hunt. This can add some flexibility to your budget and set you up for future success by lowering your final loan amount.
  • Building an emergency fund: If you’re building an emergency savings fund to help you prepare for unexpected costs, medical bills, or other expenses, why not put it in a high-interest account? The added interest will help you better prepare for the unexpected.

You can also use a high-interest account as part of a larger, long-term savings strategy; or to give you an edge on meeting specific savings benchmarks.

Is a CD right for you?

How to choose a high-interest savings account

Just like with regular savings accounts, there are a myriad of high-interest account options – so how do you choose the best high-interest savings accounts for your needs?

Here are some things you should consider before you open an account:

  1. Interest rate: Carefully check the interest rates and APY on the account to determine if it fits your high-interest your needs. APY varies by account type, bank and other variables, so be sure to check out our handy APY calculator – also known as a savings interest calculator, a savings goal calculator or a retirement savings calculator – to learn more about how to accurately forecast your potential savings.
  2. Fees: Carefully read over any fees associated with the account – these could be banking fees, membership fees, early withdrawal fees and penalties, or others.
  3. Balance requirements: What are the balance requirements for a high-interest account? Like other savings accounts, high-interest accounts often require you to maintain a minimum balance. Which offering the highest minimum balance? If you don’t think you’ll be able to maintain that amount, or it’s more than you have on hand, it may not be the account for you.
  4. Initial deposits: As a rule of thumb, the higher the interest rate, the higher the initial deposit requirement. Some high-interest products like CDs or Money Market accounts may require a minimum initial deposit of $1,000 or more. However, there are options – like First Merchants’ Smart Saver CD, which only requires an initial deposit of $25. Make sure the account works with your budget.
  5. Withdrawal options: Does the account you’re looking at have withdrawal limits? Often, savings accounts and other high-interest options will offer a higher interest rate in exchange for limiting withdrawal. You may not be able to withdraw funds before a specific amount of time has passed, or you may only be able to withdraw a certain number of times – or a certain amount – each month, quarter, or year. As you consider opening a high-interest account, pay close attention to what the account’s withdrawal limits are, and weigh that requirement against your lifestyle or your savings goal.
  6. Deposit options: Some high-interest accounts also limit deposits. So be sure to read the fine print. Does the account you want to open require a high initial amount, but doesn’t allow you to make additional deposits – such as a traditional CD? Or do they allow you to make ongoing deposits throughout the life of the account – more like a Money Market account? Or does it require a minimum amount deposited each month, like First Merchants’ Smart Saver CD?

These are all variables you should carefully consider before you open any high-interest account. Remember that a product that works for one person isn’t necessarily the best choice for everyone – try to select an option that aligns with the money you have on hand, your income, your spending and savings habits, and your lifestyle.

Want to compare savings accounts and rate of return? Our savings calculators can help with that.

Advantages of high-interest savings accounts

If you do decide to move forward with opening a high-interest account, there are several perks you can look forward to.

Unlike investing, a high-interest savings account still yields a decent rate of return, but without the amount of risk that comes from a rapidly fluctuating market. And, because you’re partnering with a bank, your account will likely be FDIC insured – meaning your funds are protected in case of a bank failure or similar forms of loss, typically up to $250,000.

And, of course, you’ll be growing your savings – maybe in more ways than one. High-interest accounts may offer compounding interest in addition to a high-interest rate – which means your nest egg, future downpayment, or vacation fund can grow even more.

Curious to see how much you can save with a high-interest account? Use our interest earned on savings account calculator!

Disadvantages of high-interest savings accounts

Of course, it’s not all sunshine and roses. There are a few disadvantages you might encounter with a high-interest product.

The first, and most notable, is that interest rates fluctuate. While your account may carry a higher-than-average interest rate, it may not always carry the same interest rate from year-to-year, as rates rise and fall with the market. With a product like a CD, your rate is typically locked in for the account’s term – so you’ll get that high-interest for 12 months, 18 months, 24 months – or however long your term is. The same may not be true for other high-interest account.

High-interest products may also come with extra fees not typically associated with a regular savings account. You may suffer penalties if you don’t meet a certain monthly deposit requirement, they may have higher account maintenance or security fees, and more.

And, as previously mentioned, your high-interest account may come with withdrawal restrictions. You may not be able to access your account for a specific period of time, or you may only be able to withdraw a certain number of times or a certain amount without suffering a penalty.


So, is a high-interest account for you? If you need to save money with a short-term goal in mind, can meet deposit requirements, and know you won’t need to touch your funds in the meantime, a high-interest savings product like a CD or Money Market account could be a great tool to help you grow your savings!

However, before you open your account, make sure to read any account documents carefully and thoroughly, so that you have a proper understanding of what restrictions, fees, and penalties may apply to your high-interest savings account.

If you still have questions, why not sit down and chat with a welcoming local banker to explore your options, goals, and plans?


How much interest does $10,000 earn in a year?

If you deposit $10,000 into a high-interest account, the amount you make in interest will depend on the account’s current interest rate, how often that interest compounds, and the length of time the account is in use. To calculate how much interest you’d earn on $10,000, try our APY Calculator or our Compound Interest Calculator.

Where can I get 5% interest on my savings account?

You may be able to get 5 percent interest on your savings account with a CD or a Money Market savings account. Contact your financial institution or check for current promotions to see if you can earn 5 percent interest on your savings.

Is a 10% return on investment realistic?

While a high-interest products can add a boost to your nest egg, it’s rare to find an account that offers 10 percent interest – though it’s not necessarily outside the realm of possibility. However, many products that offer very high-interest rates also come with numerous restrictions. Be sure you’re reading over account requirements and any fine print carefully to ensure you’re getting a good deal in addition to a good return on investment.

How often will savings rates change?

Most interest rates follow market trends, which can change from day-to-day – unless you’re using a specialized product like a CD, which locks in a specific interest rate for a specific period of time.

Do you pay taxes on interest earned in a high-interest savings account?

Yes. You will have to pay income tax on any interest earned from a CD or high-interest account, provided the account earns more than $10 in interest in a given year. At the start of tax season, you will receive a 1099-INT form from the financial institution which holds your account. Chat with one of our attentive bankers to find out how you can prepare for tax season.

Why are most high-interest savings accounts online only?

The types of accounts available depend on your bank. Online savings accounts are gaining popularity as people become more mobile, and the number of financial institutions is growing – particularly those without brick-and-mortar locations. Offering savings accounts with higher interest rates is possible for many new, online-only financial institutions because they don’t need to cover the cost of a physical location.

As you look at different high-interest savings account options, be sure that you are also looking at the institution offering this product. Saving money is a long-term strategy – so who you choose as a financial partner matters. Carefully consider whether any institution you’re partnering with has a proven track record, a reputation for integrity, and responsible and sustainable business practices that ensure longevity before you commit your savings to their care.

Should I keep all my savings in a high-yield savings account?

If your high-interest account is FDIC-insured, it is likely insured up to $250,000. If you have more than $250,000 in a single account, you risk losing anything over that amount if something happens to the bank. Most financial professionals do not recommend keeping all your savings in a single account for this reason.

Can you lose money in a high-yield savings account?

While the vast majority of financial institutions are federally insured through the FDIC, not all of them are. If your financial institution is not federally insured, or you have deposited more than the $250,000 insured by the FDIC, you may lose that amount if anything happens to the financial institution that holds your account.

Can you live off of a high-yield savings account?

While high-interest paying savings accounts can offer a significant rate of return, whether it would be enough to cover living expenses will depend on where you live, your monthly expenditures, and how much you have deposited into your account. Use our savings account calculator APY tool to see how much interest you can earn per year based on your deposit.

Open a high-interest savings account

Ready to open a high-interest savings account online? Try our Smart Saver CD to get started!