Where to Stash Your Graduation Gift Money to Earn 5% or More (2024)

The full article continues below these offers from our partners.

High-Yield Savings Accounts Offer Great Returns With Ultimate Flexibility

If you've received cash gifts to congratulate you for a high school or college graduation and you don't need the money right away, you're in luck. That's because today's savings accounts are paying the highest returns we've seen in more than 20 years—possibly the highest in your lifetime, depending on your age.

Stashing your gift money in a high-yield savings account can make it grow into something bigger—a gift your future self will appreciate. At the same time, a savings account leaves you the option to withdraw some or all of your money whenever you need it.

So how much can you earn? Right now, the top nationwide savings account is paying an annual percentage yield (APY) of 5.55%. Our daily ranking of the best high-yield savings accounts also includes 10 more options that pay 5.25% or better. Assuming you snag a rate of 5.50%, here's what your earnings would look like for different dollar amounts and durations.

But be aware that what you can earn on a savings account today is not guaranteed into the future. You may be lucky and earn the same high yield for months or even a year. But your bank could also lower your rate soon after you deposit your money. Banks and credit unions are free to change savings account rates at any time, and they don't have to warn you.

They base their rates in part on the federal funds rate, the interest rate commercial banks use when they lend to each other overnight. That benchmark rate that is set by the Federal Reserve. When the Fed changes the fed funds rate your savings rate often changes as well.

Right now, the Federal Reserve is holding interest rates (namely, the fed funds rate) steady, so savings accounts are expected to continue offering roughly the same rates as they have been. But in the coming months, the Fed could begin cutting rates, which will trigger rate reductions for savings accounts. And in 2025, savings accounts may offer even lower rates.

How You Could Earn More With a Top-Paying CD

Savings accounts are great for letting you earn interest on your cash, rather than letting it sit in a checking account likely earning nothing. But since you never know if your current savings rate will drop next month or the month after that, if you don't need your savings for a while, you could do better by putting it into a certificate of deposit (CD).

CDs are just another type of bank or credit union account, but they involve an agreement between you and the financial institution. In exchange for you agreeing to keep your deposit untouched in the CD until its maturity date, which could be months or years away, the bank or credit union agrees to pay you its advertised rate for the full duration of the CD.

This means that if interest rates come down this year or next—or both—due to changes from the Fed, any existing CD you own will keep earning its original interest rate. No future moves by the Fed can change your locked-in CD rate.

Right now, the best nationwide CDs are paying close to the same top rate as high-yield savings accounts. But depending on the term you choose, putting your grad gift money in a CD would allow you to guarantee your return with no surprises.

The trade-off with a CD is that if you find you need to cash it out before it reaches its maturity date, you'll be hit with an early withdrawal penalty. Some of these are very harsh, while others are quite mild. So even though you've recently graduated, this is an area where it's still important to do your homework and learn what the early withdrawal penalty is on different CDs you're considering.

A Hybrid Strategy Could Be the Winning Choice

For many savers, a combination of a high-yield savings account and a CD is the best choice of all. By splitting your money into two pools, you can sock away some of it in a CD, where it can earn high, guaranteed interest rates. Then you can keep the other portion of your money in a high-yield savings account, where you can access it anytime you need it.

How We Find the Best Savings and CD Rates

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account's minimum initial deposit must not exceed $25,000.

Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.