Your savings account interest rate depends on which bank you use and what type of account you open
There is no single interest rate that applies to all savings accounts. Each bank sets its own rates, and those rates change based on what the Federal Reserve does with its benchmark interest rate. A savings account at one bank might pay 4.5% annually while another pays 0.01% — both are real numbers you might see today, and both can change next month.
The rate you receive also depends on the account type. A high-yield savings account at an online bank typically pays more than a traditional savings account at a brick-and-mortar bank. Money market accounts sometimes pay more than regular savings accounts. Certificates of deposit (CDs) usually pay the highest rates, but you have to lock your money away for a set period.
Banks publish their current rates on their websites, usually on the savings or deposit products page. You can compare rates across multiple banks before you open an account. The rate you see when you open the account is the one that applies to your money — but banks can change rates on existing accounts with notice, typically 30 days.
Key Takeaways
- Interest rates on savings accounts vary by bank and account type, ranging from less than 0.01% to over 4% depending on current market conditions.
- Online banks and high-yield savings accounts typically pay higher rates than traditional savings accounts at local banks.
- The Federal Reserve's benchmark rate influences what banks pay, so rates rise and fall over time as the Fed makes changes.
- You can compare rates across banks before opening an account, and the rate you see at opening is what you start with, though banks can change it later with notice.
- The amount of interest you actually earn depends on your balance, the rate, and how often the bank compounds the interest.
How banks decide what rate to offer
Banks use the Federal Reserve's benchmark interest rate — called the federal funds rate — as a starting point. When the Fed raises its rate, banks typically raise the rates they pay on savings accounts. When the Fed lowers its rate, banks usually lower what they pay you. The Fed does not set the exact rate banks must pay; it sets a range, and banks choose where to sit within that range or above it.
A bank's operating costs and competition also matter. An online bank with no physical branches has lower overhead than a bank with hundreds of locations, so it can afford to pay you more. If many banks in your area are offering high rates, a local bank might raise its rate to keep customers. If a bank is trying to attract new customers, it might offer a promotional rate that is higher than usual for a limited time.
The size of your balance can affect your rate too, though this is less common now. Some banks offer tiered rates — a higher rate if you keep a larger balance — but many have moved away from this model. Always check the fine print when you open an account to see whether your rate depends on how much money you keep in the account.
The difference between APY and interest rate
Banks advertise savings rates using APY, which stands for Annual Percentage Yield. This number tells you how much interest you will earn in a year if you do not withdraw any money. APY includes the effect of compounding, which means the bank pays interest on your interest.
Here is how compounding works: if you have $1,000 in an account that pays 4% APY and the bank compounds interest daily, the bank calculates interest on $1,000 on day one. On day two, it calculates interest on $1,000 plus the tiny bit of interest you earned on day one. By the end of the year, you have earned slightly more than 4% because you earned interest on your interest.
The more often a bank compounds interest, the more you earn. Daily compounding pays more than monthly compounding, which pays more than annual compounding. Most savings accounts compound daily, so the APY you see is usually what you will actually earn. When you compare rates between banks, always compare APY to APY, not APY to a different measure.
Why rates change and what that means for your money
Savings account rates are not locked in for life. Banks can change the rate on your account at any time, though federal law requires them to give you notice — usually 30 days — before lowering a rate. Some banks notify you by mail, email, or a notice in your online banking portal. You should check your email and account statements so you do not miss a rate change.
When rates go down, your earnings go down too. If you had $10,000 earning 4.5% APY and the bank drops the rate to 2%, you will earn about $200 less per year on that same $10,000. This is why some people move their money to a bank offering a higher rate. Banks know this, so they sometimes keep rates competitive to avoid losing customers.
When the Federal Reserve raises its benchmark rate, banks usually raise savings rates within weeks or months. When the Fed lowers its rate, banks often lower savings rates much faster. This is because banks want to pay you less when they can, but they need to pay you more to compete when rates are rising across the industry.
How to find the highest rate available right now
The highest rates are usually at online banks and credit unions, not at traditional banks with physical locations. Online banks have lower costs, so they can pass savings on to you. Credit unions are member-owned, so they sometimes prioritize paying members competitive rates over maximizing profit.
You can search for current rates on financial comparison websites, though you should also check the banks' own websites directly — sometimes the rate on the bank's site is different from what a comparison site shows. Look for the APY, not just the interest rate, and check whether there are any conditions, like a minimum balance or a limit on how many times you can withdraw per month.
High-yield savings accounts typically pay 4% to 5% APY in a rising rate environment, though this changes as the Fed adjusts its benchmark rate. Traditional savings accounts at large banks often pay 0.01% to 0.05%. Money market accounts fall somewhere in between. CDs lock your money away but usually pay the highest rates — sometimes 5% or more for a one-year CD, depending on the bank and the current rate environment.
What happens to your interest if you withdraw money
Interest accrues daily, meaning the bank calculates how much you have earned each day based on your balance that day. If you withdraw money mid-month, you lose the interest you would have earned on that money for the rest of the month. The interest you already earned stays in your account.
Some savings accounts have withdrawal limits or fees if you withdraw too many times per month. Federal law used to cap savings account withdrawals at six per month, but that rule was suspended. However, individual banks can still set their own limits. Check your account agreement to see whether your bank charges a fee for frequent withdrawals or limits how many you can make.
If you need to access your money regularly, a high-yield savings account is still better than keeping cash at home, because you earn interest on every dollar. But if you know you will not need the money for a set period — say, six months or a year — a CD might pay a higher rate because you are committing to leave the money untouched.
How much interest you will actually earn
The amount of interest you earn depends on three things: your balance, the APY, and how long the money stays in the account. A simple way to estimate is to multiply your balance by the APY. If you have $5,000 in an account paying 4% APY, you will earn about $200 in a year (before any fees or rate changes).
Most banks show you how much interest you have earned so far in the current month or year. You can see this in your online banking portal or on your monthly statement. The interest appears as a deposit to your account, usually on the last day of the month or the first day of the next month, depending on the bank.
Interest earned in a savings account is taxable income. At the end of the year, your bank will send you a 1099-INT form if you earned $10 or more in interest. You report this on your tax return. This is one reason why earning interest in a savings account is different from earning interest in a tax-advantaged retirement account like an IRA.
Frequently Asked Questions
Can a bank lower my interest rate without telling me?
No. Federal law requires banks to notify you before lowering the rate on your savings account, usually with at least 30 days' notice. The notice may come by mail, email, or a message in your online banking portal. You should check your email and statements regularly so you do not miss a rate change.
Is a high-yield savings account safe if the bank fails?
Yes, as long as the bank is FDIC-insured. The FDIC (Federal Deposit Insurance Corporation) protects up to $250,000 per depositor per bank. Most online banks that offer high-yield savings accounts are FDIC-insured. You can check a bank's FDIC status on the FDIC website before you open an account.
Why does my savings account pay almost nothing when the news says rates are high?
Large traditional banks often pay very low rates on savings accounts because they do not need to compete for deposits — they have many customers already. Online banks and credit unions pay higher rates because they need to attract customers. If your bank pays less than 0.5% APY, you are likely earning significantly less than you could elsewhere.
What is the difference between a savings account and a money market account?
A money market account usually pays a higher rate than a regular savings account, but it may require a larger minimum balance and sometimes limits how many times you can withdraw per month. Both are FDIC-insured up to $250,000. Money market accounts are a middle ground between savings accounts and CDs.
If I move my money to a different bank, do I lose the interest I already earned?
No. The interest you have already earned stays in your account and is yours to keep or transfer. You only lose future interest if you withdraw the money. When you move money to a new bank, the interest you earned at the old bank comes with you.