Bank accounts with interest rates higher than 1% APY generally fall under one of the two categories, money markets or CD accounts. Among these CD accounts may not be a good choice always due to the restrictions they put on free transactions. Customers may not use the money till maturity. If these restrictions are hard to digest, one can very well sign money market accounts with banks where one is free to perform transactions. Also the interest rates are almost equal to that of CDs.

Money markets are gaining popularity due to the balance they offer between CD accounts and checking accounts. They are not as restrictive as CD accounts and not as low yielding as checking accounts. Also this is one account scheme where banks can expect a large volume of customers. Hence banks tend to compete with themselves on important deciding factors like rates offered, service charges etc. This competition has driven the rates of money markets very high.

There are banks which offer rates in excess of 1.5% APY. Some banks can also offer higher rates for the first few months of opening an account. This is again a step to beat out competition from other banks. Banks promote these accounts as a safer way to invest especially during times when markets fluctuate. Also the accounts come under FDIC coverage. This coverage can have a limit as high as 250,000$ which is good enough for customers. On the other hand customers may not expect such insurance in other investments like mutual funds, foreign currencies and stock markets.