Congress Proposes Universal Savings Account: A Tax-Free Alternative to High-Yield Savings?

Key Highlights

• New companion bills introduced in the U.S. House and Senate aim to establish a Universal Savings Account (USA) for all Americans.
• The USA would allow annual contributions with earnings growing completely tax-free.
• Unlike Roth IRAs, USA funds can be withdrawn anytime without penalties, offering unmatched flexibility.
• Whether a USA beats a high-yield savings account depends on your returns and tax bracket.

Introducing the Universal Savings Account

On May 1, Senator Ted Cruz (R-Texas) and Representative Diana Harshbarger (R-Tennessee) unveiled companion bills proposing the Universal Savings Account Act. This innovative legislation seeks to create a tax-advantaged savings vehicle available to every American, enabling post-tax contributions that grow free from taxation.

While reminiscent of Roth IRAs, which allow tax-free growth but restrict penalty-free withdrawals until age 59½, the USA stands out by permitting withdrawals at any age without penalties. Contributions would be made with after-tax dollars, meaning no upfront tax deductions, but all earnings would be exempt from future taxes.

The proposed contribution limits are notably higher than Roth IRAs: starting at $10,000 annually in the first year, increasing by $500 each year until capping at $25,000. In contrast, Roth IRA limits for 2025 are $7,000 (or $8,000 for those 50 and older). Additionally, the USA imposes no income restrictions, unlike Roth IRAs, which phase out eligibility at higher income levels.

Universal Savings Account vs. High-Yield Savings Accounts

Comparing the USA to today's leading high-yield savings accounts depends largely on potential returns and your tax situation. For example, a 4% interest rate from a traditional savings account is subject to income tax, reducing your effective yield based on your tax bracket.

Someone in the 22% tax bracket retains approximately 78% of their interest earnings, resulting in a net return of about 3.12% from a 4% nominal rate. Understanding these figures helps determine the minimum USA return needed to outperform taxable accounts.

If the USA offers a comparable interest rate or if you fall within a higher tax bracket (35% or 37%), the tax-free growth can provide significant advantages. Ultimately, the decision hinges on calculating after-tax yields versus the USA's tax-exempt returns.

Maximizing Benefits with a USA

The greatest advantage of a USA emerges when funds are invested long-term, allowing for compounded growth through stocks, bonds, ETFs, and more—similar to Roth IRAs. This strategy is ideal for savings you don't plan to access in the near future, maximizing tax-free investment gains.

Current Best Options for Your Savings

While the USA legislation awaits approval, it's crucial to optimize existing savings vehicles. Our daily national rankings showcase the highest-yielding savings accounts, currently offering APYs between 4.35% and 5.00%, all with flexible withdrawal options.

Additionally, certificates of deposit (CDs) provide locked-in returns, protecting your earnings from rate fluctuations. For instance, a 1-year CD at 4.50% guarantees that rate regardless of market changes.

Interest Rate Outlook

The Federal Reserve recently paused interest rate hikes, signaling possible rate cuts later this year. Such changes could lower savings and CD rates, making it essential to stay informed and consider locking in favorable rates now.

Explore Our Daily Rankings

We update these lists every business day to help you find the best deposit rates nationwide:

• Top 3-Month CD Rates
• Top 6-Month CD Rates
• Top 1-Year CD Rates
• Top 18-Month CD Rates
• Top 2-Year CD Rates
• Top 3-Year CD Rates
• Top 4-Year CD Rates
• Top 5-Year CD Rates
• Best High-Yield Savings Accounts
• Best Money Market Accounts

Important Note

Our "top rates" reflect the highest nationally available yields identified through extensive daily research of hundreds of banks and credit unions—not national averages, which are often much lower due to inclusion of large banks with minimal rates. By shopping smart, you can find rates multiple times higher than average.

How We Identify Top Savings and CD Rates

Each business day, we analyze rate data from over 200 federally insured banks (FDIC) and credit unions (NCUA) across the U.S. To qualify, institutions must offer accounts with minimum deposits under $25,000 and no maximum deposit limits below $5,000. Banks must operate in at least 40 states to be considered nationally available. Credit unions requiring donations over $40 for membership are excluded to ensure broad accessibility. For full details, see our methodology.

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