The Fed raised interest rates again. Where to earn 3-5% on your savings account

“With interest rates rising, the most competitive savings accounts offer yields last seen in 2009 and they continue to climb,” says Greg McBride, chief financial analyst at Bankrate. Many accounts are currently paying 3% or more, and you can see some of the highest savings account rates you may get now here.

To be sure, those higher rates are coming from high-yield savings accounts (and here we list a couple checking and savings accounts paying up to 5% right now), but the average savings account is still paying an unremarkable yield (see below).

Today’s savings rates

Below are the latest average rates on savings accounts and CDs, according to data from Bankrate released on December 14, and then we chat with experts about how much you should be saving (yes, even in this high-inflation environment), where to put the money, and more. 

How much do you need in savings?

The general rule of thumb is that you should plan to keep anywhere from 3-12 months of essential income in an emergency fund. Factors like your age, marital status and career all play a part in exactly how much emergency savings you need.

“Married couples still in their careers want between 3 and 6 months of savings, but likely closer to six if the income is lopsided,” says certified financial planner Curtis Crossland of Suttle Crossland Wealth Advisors. If “you’re looking to switch careers and you expect to be unemployed for a few months,” 12 months may be more like it, says Alvin Carlos, certified financial planner at District Capital Management. 

In addition to an emergency fund, you may also want to save for short-term goals, like buying a home in the next six months, or taking a vacation in the near future. 

See some of the highest savings account rates you may get now here.

Where to put your money: Savings account, MMA vs CDs

Experts unanimously agree that you should put your emergency fund money somewhere safe, like a high-yield savings account, money market account or a CD. 

The perks of savings accounts are flexibility, ease of saving, earning interest and knowing your money is protected. But there can be drawbacks of having your money in high-yield savings accounts too, like withdrawal limits that incur fees when you’ve exceeded the number of withdrawals in a month. These accounts are also not ideal for retirement savings; there you’re better off investing that money, pros say. 

Risk-averse investors or anyone only looking to invest money for the short-term should consider CDs, as they can be useful in terms of protecting principal, while still allowing for a little bit of interest to be earned. Indeed, CDs typically offer better interest rates than savings accounts, but it’s important to keep in mind that putting money into a CD really only makes sense if you’re able to keep it there until it reaches maturity, which is typically between a few months and five years — otherwise, you’ll be on the hook for a hefty penalty. A CD is often one of the best savings tactics if you’re saving with a specific goal in mind, as you’re guaranteed to earn a return. 

Money market accounts (MMAs) are savings accounts that have debiting and check-writing abilities accompanied by higher interest rates than traditional savings accounts. MMAs frequently have higher minimum balance requirements and usually have subpar interest rates compared to high-yield savings accounts, but if having the option to spend directly from a savings account is something that’s important for you, a MMA offers decent rates with the flexibility of writing checks or using a debit card attached to the account.

What to know before opening an MMA or savings account or purchasing a CD

Before opening a savings account, make sure you have the protection of federal deposit insurance, that you’re able to meet any balance requirements to avoid any monthly fees and that you can easily get money into and out of the account when needed. “Often, linking the account to the checking account at your current bank or credit union is an easy way to move money back and forth,” says McBride. (See the highest savings account rates you may get now here.)

Before getting a CD, make sure you  understand the terms of the deposit and that you’re okay with not being able to touch your money for whatever fixed time period you’ve agreed upon. It’s also wise to familiarize yourself with the early withdrawal penalty fee in case you find yourself needing to withdraw funds before the CD matures.

Before opening a MMA, make sure you’re able to meet the minimum balance requirement and compare the interest rate with that of a traditional savings account and a high-yield savings account to make sure you’re getting the most bang for your buck.

The future of savings rates

Nobody can say for certain where interest rates will go, but with more rate hikes potentially looming on the horizon, savers can expect an improvement in returns for savings accounts and CDs, particularly at online banks, smaller community banks and credit unions. “The outlook for additional rate hikes is a promising one for savers, especially at the point we start to see a retreat in inflation,’ says McBride.