Putting cash into a savings account can be one way to help your money grow, not only by stashing it away so you don’t spend it, but also by potentially earning interest as it sits in the account. One type of interest-earning savings account you might want to0 consider is a tiered-rate savings account.
The interest rate that a tiered-rate savings account earns typically increases as the amount of your savings increases — which can make saving cash even more motivating.
Key Points
• A tiered-rate savings account offers multiple interest rates based on the account balance, encouraging higher savings as interest rates increase with larger deposits.
• Minimum balance requirements often apply to open and maintain tiered-rate accounts, along with potential monthly transaction conditions to retain higher interest rates.
• These accounts generally provide higher interest rates compared to traditional savings accounts, allowing savings to grow more rapidly through the effects of compound interest.
• Investing in tiered-rate accounts may yield lower long-term returns compared to other investment options, like stock market investments, due to lower interest rates.
• Alternatives to tiered-rate savings accounts include high-yield savings accounts, money market accounts, and certificates of deposit, each with varying benefits and requirements.
What Is a Tiered-Rate Savings Account?
A tiered-rate savings account is a savings account that has multiple interest rates that can be applied, depending on the amount of money in the account.
The way tiered-rate savings accounts generally work is that as the account holder’s savings grow, their interest rate on the savings account also rises. Interest rates for these accounts are offered on a tiered scale with the largest balances getting the highest interest rates.
A tiered savings account might encourage customers to save more money as they work towards earning the highest possible interest rate. It may also keep account holders loyal to their current bank with a long-term account.
How Do Tiered-Rate Savings Accounts Work?
If you open a bank account that’s a tiered-rate account, the higher your balance is, the higher your interest rate is likely to be. That means as your balance grows, your interest rate has the potential to rise, and your savings may grow more quickly.
Tiered-rate accounts offer account holders different “tiered” interest rates that correspond with different account balances. For example, if a bank offers a tiered-rate savings account they may give a 0.05% interest rate for savings account amounts up to $25,000. For savings ranging from $25,000 to $100,000 they may raise that interest rate to 1.00%.
Tiered-rate savings accounts tend to have a minimum balance threshold needed to open an account for the first time. Typically, a minimum daily balance must also be maintained. In addition, these accounts may require that their holders make a minimum amount of monthly transactions, such as making deposits or transferring money to another account.
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Characteristics of Tiered-Rate Accounts
The following features are typically associated with tiered-rate accounts:
• Interest rates rise as account balances grow
• Minimum initial deposit and ongoing balance requirements
• Minimum monthly transaction requirements
Pros of Tiered-Rate Savings Accounts
These are some of the advantages to having a tiered-rate savings account:
Opportunity to Earn Higher Interest Rate on Savings
Tiered-rate savings accounts typically offer higher interest rates than traditional savings accounts do — especially for motivated savers who work to increase their account balances.
Potential for Money to Increase Quicker
Because interest rates can be higher with tiered-rate savings accounts, it’s possible for money held in these accounts to grow faster than it might in other types of savings account, as long as it remains in the account. Because of the effect of compound interest, your money could make more money.
Cons of Tiered-Rate Savings Accounts
There are also some disadvantages of tiered-rate savings accounts that are worth keeping in mind.
Putting Money Elsewhere May Be Better to Build Wealth
The interest rates offered by tiered-rate accounts tend to deliver a lower return when compared to some other investments over time, such as investing in the stock market. While investing in stocks is considered far riskier than earning interest in a savings account, investors could potentially see a higher return over the long term from stocks. This could be helpful when saving for long-term goals like retirement.
Need a Larger Account Balance for the Highest Rates
To secure the best interest rates through a tiered-rate savings account, account holders may need to keep a large sum of money in their savings account. If someone doesn’t have that amount of money, they may find that a standard savings account is better for them.
Here is a chart comparing the pros and cons of tiered-rate accounts:
| Pros of Tiered-Rate Accounts | Cons of Tiered-Rate Accounts |
|---|---|
| Opportunity to earn higher interest rates on savings | Putting money elsewhere may be better for building wealth |
| Potential for money to increase more quickly | Need a larger account balance for the highest rates |
Alternatives to Tiered-Rate Savings Accounts
If you’re looking to earn money on your savings, there are a few different vehicles you can consider for earning competitive interest on your funds.
• High-yield savings accounts: High-yield savings accounts are similar to standard savings accounts, but they earn much higher interest rates. High-yield savings accounts are often found at online banks. These financial institutions don’t have to finance bricks-and-mortar branch locations, so they may pass along the savings to their customers in the form of higher interest rates, lower fees, and/or special bonuses.
• Money market accounts: Money market accounts are typically insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) like savings accounts. They tend to have higher annual percentage yields (APYs) than traditional savings accounts. There is, however, a potential downside: Money market accounts may have significantly higher minimum deposit and balance requirements, and they might also have withdrawal limits much like some savings accounts do.
• Certificate of deposit (CD): Certificates of deposit vs. savings accounts can be a wise choice for some consumers. CDs are time or term deposits, meaning the money stays in the account for a specific period of time (typically six months to a few years, though longer and shorter terms are available). If you withdraw the funds before the maturity date, or the end of the term, you will likely pay a penalty fee. Because of the time commitment involved, CDs may offer higher interest rates than savings accounts and money market accounts.
The Takeaway
If an individual has a sizable amount of money to deposit, they may find that a tiered-rate savings account could be a good option. This type of account offers a way to earn a higher interest rate the more the account holder has in the account.
If, however, a person is just starting their savings journey, a traditional savings account may be a better fit. Either way, an aspiring savings account holder should evaluate such variables as interest rate, minimum deposit and balance requirements, and account fees. That can help them find the right savings account for their needs.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
What is tiered APY?
Tiered-rate accounts offer account holders different tiered APY, or annual percentage yield, which is how much you will earn on your cash over the course of a year. The amount of money an account holder has on deposit will qualify them for a certain tier or level. Typically, the more money on deposit, the higher your APY.
What is tiering in banking?
Tiering in banking refers to tiered-savings accounts, which provide account holders with different interest rates based on the balance in their savings account. Usually, the higher someone’s account balance is, the higher their interest rate is.
Is a tiered interest rate good?
A tiered interest-rate structure tends to benefit savers who have high account balances because the more money you have on deposit, the higher your interest rate. If someone has a smaller amount of savings, a traditional or high-yield savings account with a single interest rate may be more advantageous to them.
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4.20% APY
SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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