What Are Tiered-Rate Accounts?

Tiered-rate accounts can offer an opportunity to grow your savings quicker with higher annual percentage yields (APYs). Often, banks and credit unions offer tiered-rate accounts to attract new clients and encourage existing customers to increase their bank balances. But many people are still confused about what constitutes a tiered-rate account.

What Is a Tiered-Rate Account?

A tiered-rate account is a bank account with different interest rates assigned to different balance ranges. Typically, you find tiered rates on savings accounts, but they are also a feature of some money market accounts, certificate of deposit (CD) accounts and interest-bearing checking accounts.

Understanding how these bank accounts work and why banks offer tiered interest rates can help you decide whether a tiered-rate account is right for you.

How Does a Tiered Interest Rate Work?

Think of a tiered-rate bank account as an interest-bearing layer cake, with each layer representing a different balance range and offering a different interest rate. Some bank accounts offer several rate tiers, while others may have as few as two tiers.

In most cases, the APYs on a tiered-rate interest account rise as your balance increases, but depending on the account, your APY may shrink if your balance exceeds a certain threshold. For instance, some banks only pay their highest APYs on balances below $50,000, while funds above that limit earn a lower APY.

Banks may require you to meet other criteria to earn tiered interest. Minimum deposit requirements are especially common among tiered-rate accounts. Other additional or alternative requirements are common too. Further, some banks require an account to meet specified transactional conditions.

For instance, a Varo Savings Account currently earns 3.00% APY without charging a monthly fee and up to 5.00% APY by meeting specific requirements each month:

• Receive direct deposits of $1,000 or more within each qualifying period and
• Maintain a daily savings balance of $5,000 or less for the entire calendar month and maintain balances above or equal to $0.00 in both savings and bank accounts for the entire calendar month.

Banks and credit unions often offer tiered-rate accounts to encourage customers to deposit more funds into their accounts. Below is an example of a rate structure you might see offered with a tiered-rate savings account.

How Does a Tiered Interest Rate Work?

Tier	Balance	Interest Rate
Tier 1	$0.01 – $5,000.00	2.00%
Tier 2	$5,000.01 – $10,000.00	2.50%
Tier 3	$10,000.01 – $50,000.00	3.00%
Tier 4	$50,000.01 – $100,000.00	3.50%
Tier 5	$100,000.01 – $250,000.00	4.00%
Tier 6	$250,000.01 or more	4.50%

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Many traditional banks, online banks and credit unions offer tiered-rate accounts. Some offer more competitive rates than others or have different fees. Like other deposit accounts, deposits into a tiered-rate bank account held at a bank are FDIC-insured up to $250,000 per depositor, per FDIC-insured bank and per ownership category.

Tiered accounts held at a federally chartered credit union are insured by the National Credit Union Administration (NCUA) up to $250,000 per share owner, per insured credit union and for each account ownership category.

Pros and Cons of Tiered-Rate Accounts

Many tiered-rate accounts offer promising returns for account holders who keep larger balances. They provide other benefits, too, but also have a downside.

Pros

• Higher rates. Tiered-rate accounts typically feature higher interest rates than traditional savings accounts.
• Liquidity. Depositing funds in a tiered-rate account offers more accessibility than some financial accounts.
• Flexibility. Tiered-rate accounts have balance ranges, making it easier to earn higher rates as you deposit more money into your account.
• Low risk. Tiered-rate savings accounts and money market accounts have a lower risk level than investment accounts.

Cons

• Lower returns. Despite high APYs, tiered-rate accounts have lower returns than investment accounts.
• Minimum balance requirements. Often, you must meet minimum opening and ongoing balance requirements to earn interest on a tiered-rate bank account.
• More complex structure. Tiered-rate accounts are more complicated to track than savings accounts with a single APY for any balance.

Examples of Tiered-Rate Accounts

Here are various tiered-rate bank accounts offered by banks and credit unions.

Savings Accounts

• CIT Bank Platinum Savings
• CIT Bank Savings Builder
• ESL Federal Credit Union Tiered Savings
• TD Signature Savings
• Tri Counties Bank Tiered Savings

Money Market Accounts

• City National Bank Personal Money Market Account
• Community Bank Prime Money Market Account
• FD Community Federal Credit Union Tiered Money Market Account
• Huntington Bank Relationship Money Market Account
• U.S. Bank Elite Money Market Savings Account
• Valley National Bank Tiered Money Market Savings Account

Checking Accounts

• Hatboro Federal Savings Small Business Checking Account
• Kerny Bank Tiered Business Checking Account
• Washington Savings Bank Tiered Interest Checking

Alternatives to Tiered-Rate Savings Accounts

Tiered accounts are only one way to earn higher rates through bank deposits. Consider one of the following accounts to earn a competitive APY with a more straightforward rate structure.

High-Yield Savings Account

High-yield savings accounts work like traditional savings accounts, but they typically come with much higher interest rates. Generally, high-yield savings accounts are offered through online banks and credit unions. These institutions often have lower overhead costs than traditional brick-and-mortar banks, which allows them to offer more competitive rates to customers.

Money Market Account

Money market accounts are hybrid bank accounts with the interest-earning power of a high-yield savings account and the convenience of a checking account. These versatile bank accounts typically include check-writing privileges and an ATM or debit card.

Some money market accounts offer tiered rates, but most generally have a more straightforward rate structure. Money market accounts typically require a higher minimum deposit than other bank account types.

Certificate of Deposit (CD) Account

Certificates of deposit are timed deposit accounts offered by banks, credit unions and other financial institutions. Banks typically offer higher rates on CDs than other accounts in exchange for your commitment to leave your deposit untouched over a period of time called a CD term. CD terms can range from one week to 10 years, and banks often charge penalty fees if you withdraw funds from a CD account before the end of the term.

Some institutions offer tiered-rate CDs, but they often use the term “jumbo” instead. A jumbo CD account typically has a higher APY than a standard CD account, but jumbo accounts usually require a deposit of $100,000 or more. Some banks reserve their highest jumbo CD rates for deposits greater than $250,000.

Should You Use a Tiered-Rate Account?

The decision to use a tiered-rate account depends on your goals and the terms of the account. Tiered-rate bank accounts can yield sizable returns depending on your balance and the available interest rate, but some tiered-rate accounts offer lower APYs on higher balances.

Depending on your situation and short and long-term savings plans, you may benefit more from a deposit account that earns a high APY regardless of your balance. Compare multiple accounts, considering interest rates, fees, minimum balance requirements and other factors to find a savings vehicle that aligns with your banking needs.