Savings account interest rates vary by bank and account type, and they change constantly

The interest rate on a savings account is the percentage of your balance that a bank pays you each year for keeping money there. Right now, rates range from nearly 0% at some large national banks to 4% to 5% at online banks and credit unions — but that gap shifts weekly as the Federal Reserve adjusts its benchmark rate and banks respond.

The rate you actually receive depends on three things: which bank you choose, what type of savings account you open, and when you open it. A money market account at one bank might pay 4.75% while a basic savings account at another pays 0.01%. There is no single "the" interest rate — you have to check the specific account at the specific institution.

Banks set their own rates within limits set by the Federal Reserve. When the Fed raises its benchmark rate, banks usually raise savings rates within weeks. When the Fed cuts rates, banks cut savings rates faster. This is why the best rate today may not be the best rate in three months.

Key Takeaways

  • Online banks and credit unions typically pay 4% to 5% on savings accounts, while large national banks often pay under 1%.
  • The rate you receive depends on the bank, the account type (basic savings, money market, or high-yield savings), and the current date.
  • Rates change when the Federal Reserve adjusts its benchmark rate, usually within weeks of an announcement.
  • You can compare current rates across banks using rate-tracking websites, but you must check the actual bank's website to confirm before opening an account.
  • A higher rate means more money in your account over time, but only if you keep the money deposited long enough to earn the interest.

How banks decide what rate to offer

Banks do not have to offer the same rate to every customer or every account type. They set rates based on how much they need deposits right now, how much it costs them to borrow money, and what their competitors are offering. A bank that needs deposits badly will raise its rate to attract them. A bank with plenty of deposits might lower its rate because it does not need to compete.

The Federal Reserve's benchmark rate — currently between 5.25% and 5.50% — acts as a ceiling. Banks cannot pay more than the Fed allows, and most pay significantly less. Online banks tend to pay closer to the Fed's rate because they have lower overhead costs (no physical branches). Large national banks with thousands of branches pay less because their costs are higher.

Credit unions often pay higher rates than banks because they are member-owned and return profits to members rather than shareholders. However, you must be a member to open an account, which sometimes requires living or working in a specific area or belonging to a specific group.

The difference between account types and their rates

A basic savings account is the simplest option. Rates on these accounts are often the lowest — sometimes under 0.5% at large banks. You can deposit and withdraw money whenever you want with no penalty, but you earn very little.

A high-yield savings account is a savings account offered mostly by online banks that pays significantly more — currently 4% to 5% at many institutions. The catch is that you need to keep the money there; some accounts limit how many withdrawals you can make per month without a fee, though this rule is less common now.

A money market account is a hybrid between a savings account and a checking account. It usually pays a higher rate than a basic savings account but lower than a high-yield savings account. You get a debit card and checks, but you may face withdrawal limits. Rates vary widely depending on the bank.

A certificate of deposit (CD) is not a savings account, but it is worth knowing about. You agree to leave money untouched for a set period (three months, one year, five years). In return, the bank pays a fixed rate that is usually higher than any savings account rate. If you withdraw early, you pay a penalty.

Where to find current rates and how to compare them

Rate-tracking websites like Bankrate, DepositAccounts, and DepositAccounts show current rates across many banks and update them daily. These sites are free and do not require you to open an account. You can filter by account type, minimum deposit, and whether you want a local bank or online bank.

However, these websites are snapshots. Rates change constantly, and the rate shown may have changed by the time you visit the bank's website. Always go to the bank's own website to confirm the current rate before you open an account. The rate you see on a comparison site should match what the bank shows, but if it does not, trust the bank's website.

When comparing rates, also check the minimum deposit required to earn the advertised rate. Some banks pay 4.5% only if you deposit at least $25,000. Others pay the same rate on accounts with $1. A lower rate on an account with no minimum might be better for you than a higher rate you cannot reach.

How interest is calculated and when you receive it

Banks calculate interest using your average daily balance — the total amount in your account divided by the number of days in the month. If you have $10,000 in the account for the entire month and the rate is 4.8% annually, you earn about $40 that month (4.8% ÷ 12 months = 0.4% per month; 0.4% of $10,000 = $40).

Interest is usually compounded daily, which means the bank calculates interest on your balance plus the interest you have already earned. This compounds your money faster than simple interest. Over years, compounding makes a real difference. A $10,000 deposit at 4.5% compounded daily grows to about $10,460 in one year; at 0.01% it grows to about $10,001.

Banks deposit interest into your account monthly, though some do it quarterly. You can withdraw it immediately or leave it there to compound. Most people leave it there because moving small amounts costs more in time than it is worth.

Why rates are different now than they were a few years ago

In 2020 and 2021, savings account rates were near zero because the Federal Reserve had cut its benchmark rate to nearly 0% during the pandemic. Banks had no reason to pay more because deposits were plentiful and borrowing was cheap.

Starting in 2022, the Fed began raising rates to fight inflation. By mid-2023, the benchmark rate had climbed to 5.25%–5.50%, the highest level in 22 years. Banks responded by raising savings rates dramatically. A high-yield savings account that paid 0.5% in early 2022 might pay 4.5% by late 2023.

This means the rates you see now are unusually high by historical standards. If the Fed cuts rates in the future, savings rates will fall again. There is no way to know when that will happen, but it is worth knowing that today's 4.5% rate is not permanent.

Frequently Asked Questions

Is the interest I earn on a savings account taxed?

Yes. Interest earned on a savings account is taxable income. Banks send you a 1099-INT form at the end of the year showing how much interest you earned. You report this on your tax return. The amount of tax you owe depends on your tax bracket and total income.

Can I lose money in a savings account if the interest rate drops?

No. Your principal — the money you deposited — is always yours. If the interest rate drops, you simply earn less going forward. You do not lose what you already have. The only exception is if the bank fails, but deposits up to $250,000 are insured by the FDIC at banks and the NCUA at credit unions.

Should I move my money to get a higher rate?

If your current bank pays under 1% and you have several thousand dollars, moving to a bank paying 4.5% could earn you hundreds of dollars per year. The move itself takes about 10 minutes online. However, if you have only a few hundred dollars, the difference is small. Calculate how much extra you would earn in a year and decide if it is worth the effort.

What happens to my interest if I withdraw money mid-month?

Interest is calculated on your average daily balance for the month. If you withdraw money partway through the month, you earn interest only on the lower balance for the days after the withdrawal. You do not lose interest you have already earned, but you earn less for that month.

Do I need a minimum balance to earn the advertised rate?

It depends on the bank and account. Some banks pay the advertised rate on any balance, even $1. Others require $25,000 or more. Always check the bank's terms before opening an account. If you cannot meet the minimum, you may earn a much lower rate or no interest at all.