You Can Earn 7% on Some Bank Accounts Right Now, but You Need to Read the Fine Print

The best high-yield savings accounts offer annual percentage yields over 5%, more than 10 times the national average of 0.45%. After more than a year of Federal Reserve interest rate hikes to fight record-high inflation, experts expect saving rates to remain high for some time.   

But could you get an even better return on your savings right now? If you’ve been thinking about moving your money to an account with a bigger yield, there are a couple of financial institutions offering APYs over 7%. But before acting too fast, there are a few important caveats to keep in mind.  

Which banks are offering 7% interest on savings accounts right now?

There are only two credit unions paying at least 7% interest right now: Landmark Credit Union, covering parts of Wisconsin and Illinois, and Alpena Alcona Area Credit Union based out of Michigan. Here’s a rundown of what these offers look like. 

Landmark Credit Union Premium Checking: 7.50% APY

Landmark Credit Union’s Premium Checking Account offers 7.50% APY, but you’ll only earn that return on balances up to $500. Balances over $500 earn only 0.05% APY, which is less than the FDIC’s national average of 0.07%. 

To qualify as a member, you must live or work in designated areas of Wisconsin or Illinois or be an immediate family member of someone who’s eligible (see here for more details). You must also enroll in electronic statements and receive at least $250 in direct deposits each month. The minimum balance to open the account is $35, and there aren’t any monthly maintenance fees. 

Alpena Alcona Area Credit Union 7-month CD: 7.19% APY

Alpena Alcona Area Credit Union has a special rate of 7.19% APY for its seven-month certificate of deposit. CDs have fixed interest rates, so the rate won’t fluctuate throughout its seven-month term. However, you’ll pay a penalty if you need to withdraw money before the term is over.  

Eligibility is limited to those who reside or work in the state of Michigan or immediate family of existing members (see here for more details). You have to make a minimum deposit of $500 to open the CD, and the maximum deposit for this offer is $7,000.

What does 7% interest mean?

Your interest rate is what a bank or credit union will pay you for depositing your money. For example, if you deposit $1,000 into an account that earns an interest rate of 7%, you’d earn $70 on that amount.

However, the real value kicks in with compounding interest, or interest on interest. Banks and credit unions may offer interest that compounds daily, weekly or monthly. The more frequent the compound periods, the greater the return on your deposit. For instance, if you deposit $1,000 into an account with a 7% interest rate that compounds daily, you’ll earn $72.50 by the end of the year.

That’s essentially the difference between an account’s interest rate versus its APY. The APY represents the cumulative interest (original balance plus compound interest) earned on funds over a period of one year, whereas an interest rate is just the percentage of interest accrued based on the initial amount. 

For example, the Alpena Alcona Area Credit Union’s seven-month CD pays 7% interest, but its APY is 7.19%. 

Is it worth it?

While a 7% interest rate is an easy sell to anyone trying to save money, there are some downsides to consider. When it comes to the Landmark Credit Union Premium Checking Account, you can earn the maximum rate on balances only up to $500. If you were to deposit a higher amount of cash into an account that earns less interest, your earning potential could still be greater. Let’s take a look at an example:

Let’s also take a closer look at the Alpena Alcona Area Credit Union’s seven-month certificate of deposit. CDs come with guaranteed rates, so you’re going to earn that 7.19% APY when the term ends no matter what. However, if you could lock up that money for a longer period — for instance, a one-year CD with a lower APY — your return might also be greater. 

Regardless of the financial institution, choosing a CD based on the APY and term length really depends on when you’ll need access to your money. Before you commit to an account, determine your specific goals and calculate your earnings based on your savings time frame.  

What to know before committing to a high-interest account

It’s important to consider more than just the interest rate when browsing different banking products. Here’s what to look at when choosing an account: 

• Monthly service fees: Pay close attention to the fee structure and any qualifying activities you must complete to get those fees waived and/or earn the highest interest rate. 

• Balance requirements and restrictions: While many savers are worried about hitting minimum balance requirements, you should also look at maximum balance restrictions. If you have a specific amount of money to deposit, you’ll need an account that won’t cap your interest potential after a certain threshold.

• Your long-term banking needs: Opening a savings or checking account means establishing a relationship with a new bank or credit union, as well as linking your account to direct deposit, bill pay, etc. It’s worth reviewing the institution’s customer service reputation to make sure you feel comfortable for the long haul.

Alternative savings options to consider

You won’t find many accounts that pay 7% right now, and the two that do exist have strict geographic requirements and other restrictions. But in a high-rate environment like today’s, there are plenty of other options worth checking out. Here are a few: 

• High-yield savings accounts: The best high-yield savings accounts offer competitive yields between 4% and 5% right now. Most of them are offered at online-only banks, so you generally won’t have to pay high maintenance fees.

• No-penalty CDs: You won’t find a no-penalty CD that pays anywhere close to 7%, but this type of CD allows you to access your money without accruing an early withdrawal penalty. Keep in mind that not a lot of banks offer no-penalty CDs, so you might be better off committing to a shorter-term standard CD if you want access to your money sooner.

• Money market accounts: The best money market accounts offer the accessibility of a checking account (some come with a debit card and check-writing privileges) with the interest-earning features of a high-yield savings account. MMAs shouldn’t replace your checking account because there’s typically a limit on the number of withdrawals you can make.