Tiered-Rate Accounts

A tiered-rate account is a deposit account, typically a savings account or money market account, where the interest rate you earn increases as your balance rises above set thresholds. Each tier corresponds to a balance range, and the rate you receive depends on which tier your balance falls into. Banks and credit unions use tiered-rate structures to reward higher balances while attracting depositors at all levels.

Think of tiered-rate accounts like a loyalty tier on an airline: the more you have deposited, the better the rate you receive.

How Tiered-Rate Structures Work

A bank sets specific balance thresholds and assigns a different annual percentage yield to each tier. There are two approaches banks use to apply rates, and the distinction matters significantly for your actual earnings.

Blended-rate tiering applies different rates to each portion of your balance. If Tier 1 pays 2.00% on balances up to $10,000 and Tier 2 pays 3.50% on balances between $10,001 and $50,000, a $30,000 balance earns 2.00% on the first $10,000 and 3.50% on the next $20,000.

Flat-rate tiering applies the highest qualifying rate to your entire balance once you cross a threshold. A $30,000 balance earning the Tier 2 flat rate of 3.50% applies that rate to all $30,000, not just the portion above the Tier 1 threshold. Flat-rate tiering produces higher earnings for depositors who clear a threshold comfortably.

Where Tiered Rates Appear

Several account types commonly use tiered-rate structures.

• High-yield savings accounts: Online banks including Ally, Marcus by Goldman Sachs, and American Express Bank have historically used tiered or promotional rate structures to differentiate balance levels.
• Money market accounts: These accounts, which typically offer check-writing privileges and higher minimum balances than standard savings accounts, often use tiers to reward the larger balances that justify the account's operating costs.
• Checking accounts: Some rewards checking accounts pay higher interest rates on balances up to a capped amount, then a lower rate on balances above the cap. This inverts the typical tiered structure by penalizing very large balances.
• Certificates of deposit: Some banks offer jumbo CD rates that apply to deposits above $100,000, creating a simple two-tier structure for certificate holders.

Reading a Tiered-Rate Disclosure

Banks are required under Regulation DD to disclose the specific balance thresholds and corresponding annual percentage yields for each tier. The disclosure must state whether the rate applies only to the portion of the balance within that tier or to the entire balance once the threshold is reached.

Look for two numbers in any tiered-rate account disclosure: the interest rate and the annual percentage yield, or APY. The APY accounts for compounding frequency and represents what you actually earn over a full year, making it the more useful comparison figure when evaluating competing accounts.

When Tiered-Rate Accounts Make Sense

Tiered-rate accounts make the most sense when your deposit balance is large enough to consistently stay within a high tier. A depositor who maintains $75,000 in a money market account with meaningful tier differentiation earns substantially more than one who holds only $5,000 in the same account.

For smaller balances, a flat-rate high-yield savings account often beats a tiered structure because there is no threshold to clear for a competitive rate. Compare the effective APY you would actually earn at your expected balance, not the highest rate listed in a tiered structure, which may only apply to balances above $100,000 or more.

Tiered Rates vs. Relationship Rates

Some banks offer relationship pricing rather than pure tiered-rate structures. Relationship rates apply a premium APY to customers who also hold a checking account, maintain a minimum number of monthly transactions, or carry other products with the same institution. The mechanics differ from tiered-rate accounts, where the balance alone determines the rate.

Relationship pricing typically benefits customers who consolidate multiple financial products with one institution. Tiered-rate accounts benefit customers who simply hold large cash balances, regardless of other product relationships. Know which model a bank uses before assuming that holding a large balance automatically earns you a better rate.

Sources

• https://www.federalreserve.gov/pubs/regdd/
• https://www.fdic.gov/regulations/applications/deposit/
• https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-savings-account-and-a-money-market-account/