What Is an Interest-Bearing Account?

Interest-bearing accounts can include savings accounts, money market accounts, certificates of deposit (CDs) and more. For many savers, these accounts are integral to basic financial planning and boosting savings.

What is an interest-bearing account?

An interest-bearing account is a type of account that pays you for keeping your money in it. The financial institution calculates interest based on your balance and credits it to your account, usually on a monthly basis or daily basis.

The higher the interest rate and the more money you keep in the account, the more you earn. Interest-bearing accounts grow your savings passively over time.

On the opposite side of the spectrum, a non-interest-bearing account means your money doesn’t earn any dividends month to month. For example, most checking accounts are non-interest-bearing.

5 types of interest-bearing accounts

There are plenty of interest-bearing accounts to compare, and you can have multiple types to diversify your savings.

1. Savings accounts. Extremely popular and affordable interest-bearing accounts, savings accounts are offered by nearly every financial institution. The national average rate is 0.42%.⁽¹⁾
2. High-yield savings accounts (HYSAs). HYSAs are just savings accounts with very high interest rates, often well above 4% APY.
3. CDs. Lock your funds away in a CD and earn a fixed interest rate over a set term. The national average rate for a 12-month CD is 1.83%.⁽¹⁾
4. Money market. Often considered a checking and savings hybrid, money market accounts earn interest and often let you spend funds via debit card or checks. The national average rate is 0.66%.⁽¹⁾
5. Checking accounts. Most don’t earn APY, but there are some interest-bearing options. The national average rate is 0.07% — much lower than most interest-bearing accounts.⁽¹⁾ Some accounts offer hybrid checking and savings accounts, where both checking and savings earn interest.

Top hybrid checking and savings accounts

Up to 3.80% APY

SoFi Checking and Savings

Go to site on SoFi's secure site

• 0.50% APY on checking balance
• Up to 3.80% APY on savings
• $0 account or overdraft fees
• Get up to a $300 bonus with direct deposits of $5,000 or more

Cashback & up to 3.75% APY

OnePay Cash

Go to site on OnePay's secure site

• $0 monthly fee and overdraft fee
• Earn 3.75% APY on Savings with eligible deposits
• Earn cashback on debit card purchases at Walmart and other brands

Earn up to 4.00% on savings

Current

Go to site on Current's secure site

• No credit check required to apply
• No monthly fees or minimum deposit
• Build credit plus earn up to 4% bonus

How much can I earn with interest-bearing accounts?

When comparing interest-bearing accounts, you’ll see a number and “APY,” such as 0.45% APY.

APY stands for Annual Percentage Yield, and the number before “APY” tells you how much interest you will earn over one year. For example, if you deposit $100 in a 5% APY account for one year, you’d earn $5 with yearly compounding interest.

How the interest compounds also determines how much you can earn. Daily compounding interest means that the interest on your money is calculated and added to your account balance daily. Each day, the new interest is calculated based on your original balance plus any interest already added. Therefore, you’ll earn more interest with a daily compounding account than with a yearly or monthly one.

Using the same example as before, $100 in a 5% APY account with daily compounding interest can yield $5.13 in one year. While it’s only $0.13 more than a yearly compounding account, it adds up over time.

Fixed vs. variable interest rates

While comparing accounts, you may also notice some labeled as “fixed” or “variable” when describing the interest rate.

A variable interest rate can change at any time, whereas a fixed rate stays the same over a set period.

For example, savings accounts have variable interest rates. The bank can raise or lower your APY whenever they’d like, often in response to market changes.

CDs, however, typically offer fixed interest rates. While the account is open, the bank can’t adjust your CD rate, which can be a good or bad thing, depending on the market.

Pros and cons of interest-bearing accounts

Interest-bearing accounts have very few disadvantages, which is why they’re so popular. But if you’re seeking an account for spending or investing, you might have to look elsewhere for that flexibility.

Bottom line

Savings accounts and CDs are two of the most popular interest-bearing accounts out there, and for good reason. By simply keeping your money in those accounts, you earn interest passively.

But not every interest-bearing account is created equally, so be sure to compare all your savings options.

To make sure you get accurate and helpful information, this guide has been edited by Holly Jennings as part of our fact-checking process.

Written by

Bethany Hickey

Banking editor

Bethany Hickey is the banking editor and personal finance expert at Finder, specializing in banking, lending, insurance, and crypto. Bethany’s expertise in personal finance has garnered recognition from esteemed media outlets, such as Nasdaq, MSN, Yahoo Finance, GOBankingRates, SuperMoney, AOL and Newsweek. Her articles offer practical financial strategies to Americans, empowering them to make decisions that meet their financial goals. Her past work includes articles on generational spending and saving habits, lending, budgeting and managing debt. Before joining Finder, she was a content manager where she wrote hundreds of articles and news pieces on auto financing and credit repair for CarsDirect, Auto Credit Express and The Car Connection, among others. Bethany holds a BA in English from the University of Michigan-Flint, and was poetry editor for the university’s Qua Literary and Fine Arts Magazine. See full bio

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