What savings accounts earn right now
The interest rate on a savings account depends entirely on which bank you use and what type of account you open. There is no single answer—a savings account at one bank might earn 4.5% annually while an identical account at another bank earns 0.01%. The difference between those two accounts is roughly $450 per year on a $10,000 balance, so the bank you choose matters more than the account type itself.
Banks set their own rates based on what the Federal Reserve charges them to borrow money, what they can earn by lending money out, and how much competition they face for deposits. When the Federal Reserve raises its benchmark rate, banks typically raise savings rates within weeks. When the Fed cuts rates, banks cut savings rates much faster—sometimes within days. This asymmetry means your rate can drop suddenly, but rises tend to lag.
The rates you see advertised are the Annual Percentage Yield (APY), which includes the effect of compounding—interest earned on interest. A bank might quote you a 4.5% APY, which means if you deposit $10,000 and make no withdrawals, you will have $10,450 after one year. The actual mechanics depend on how often the bank compounds (daily, monthly, or quarterly), but APY already accounts for that, so you can compare rates directly across banks.
Key Takeaways
- Savings account rates vary from under 0.01% to over 5% depending on the bank, so comparing rates across institutions can add hundreds of dollars annually to your balance.
- Online banks typically offer higher rates than brick-and-mortar banks because they have lower overhead costs and compete aggressively for deposits.
- The rate you see quoted is the APY, which already includes the effect of compounding, so you can compare one bank's offer directly to another's.
- Your rate can change at any time after you open the account, and banks usually lower rates faster than they raise them when the Federal Reserve moves.
- Money market accounts and high-yield savings accounts earn the same rates as regular savings accounts at the same bank—the difference is in features like check-writing or withdrawal limits.
Why rates differ so much between banks
Online banks consistently offer higher rates than traditional banks. A bank like Ally or Marcus might offer 4.5% APY on savings, while Chase or Bank of America offer 0.01% on the same account type. The gap exists because online banks have no physical branches, no tellers, and no brick-and-mortar overhead. They pass those savings to depositors by offering higher rates. They also compete directly on rate—their only way to attract customers is through the website, so they advertise aggressively and keep rates high.
Traditional banks keep rates low because they rely on branch traffic and existing customer relationships. A customer with a checking account, mortgage, and credit card at Chase has less reason to move their savings elsewhere, so Chase doesn't need to offer a competitive rate to keep that deposit. They also earn money by lending out deposits at higher rates, so they can afford to pay depositors less.
Credit unions sometimes offer competitive rates, but not always. Some credit unions pay 4% or higher on savings; others pay under 1%. The rate depends on the individual credit union's lending strategy and deposit base, so you have to check your specific credit union rather than assuming it will beat a bank's rate.
How the Federal Reserve affects what you earn
The Federal Reserve sets a benchmark interest rate that influences all other rates in the economy. When the Fed raises its benchmark rate, banks can charge borrowers more for loans, so they can afford to pay depositors more for savings. When the Fed cuts rates, banks earn less on loans, so they cut what they pay savers. The relationship is not one-to-one—a 0.25% Fed rate cut does not always mean your savings rate drops by exactly 0.25%—but the direction is consistent.
The lag between a Fed move and a change to your account rate varies. Banks raise savings rates within one to three weeks of a Fed increase because they want to attract deposits while rates are rising. Banks cut savings rates much faster when the Fed cuts—sometimes within days—because they want to reduce what they pay out when ready. This means if you have money in savings, you benefit quickly from Fed rate increases but lose the benefit quickly when rates fall.
The Fed's current benchmark rate is publicly available on the Federal Reserve's website, and you can track historical changes there. Knowing where the Fed rate stands helps you understand whether your bank's rate is competitive or whether you should move your money to a bank offering more.
How much interest compounds over time
Compounding means you earn interest on the interest you already earned. If your account earns 4.5% APY and you deposit $10,000, after one year you have $10,450. In year two, you earn 4.5% on $10,450, not just the original $10,000, so you earn $470 instead of $450. The difference grows larger the longer money sits in the account.
Here is what $10,000 grows to at different rates over five years, assuming no deposits or withdrawals:
| APY | After 1 year | After 3 years | After 5 years |
|---|---|---|---|
| 0.01% | $10,001 | $10,003 | $10,005 |
| 1.0% | $10,100 | $10,303 | $10,510 |
| 4.5% | $10,450 | $11,411 | $12,462 |
| 5.0% | $10,500 | $11,576 | $12,763 |
The difference between 4.5% and 5.0% looks small in year one ($50), but after five years it is $300. Over ten years, the gap widens to $650. This is why comparing rates across banks matters—a 0.5% difference compounds into real money over time.
What happens when rates change
Banks can change your savings rate at any time after you open the account. Most banks notify you by email or mail before the change takes effect, but you are not locked into a rate. If your bank cuts rates and you have a large balance, moving to a bank with a higher rate can make financial sense.
Rate changes happen frequently. In 2023 and 2024, as the Federal Reserve raised rates, many online banks raised their savings rates from under 0.5% to over 4.5% within months. Customers who moved money to those banks during that period earned thousands of dollars more than customers who left money at traditional banks. Conversely, if the Fed begins cutting rates, online banks will cut their savings rates faster than traditional banks, so the advantage of being at an online bank shrinks.
You can monitor rates at different banks using rate comparison websites, though you should verify the current rate on the bank's own website before moving money. Rates change frequently enough that a comparison site updated yesterday may not reflect today's offer.
Savings accounts versus other places to keep money
Savings accounts are not the only place to earn interest on cash. Money market accounts at the same bank earn the same rate as savings accounts—the difference is that money market accounts usually allow check-writing and have higher minimum balances. Certificates of Deposit (CDs) lock your money away for a set term (three months, one year, five years) in exchange for a slightly higher rate. Treasury bills are short-term loans to the federal government that earn a set rate and mature in weeks or months.
If you need access to your money within the next year, a savings account or money market account makes sense. If you have money you won't touch for six months or longer, a CD or Treasury bill might earn more. The tradeoff is that CDs and Treasury bills penalize you for early withdrawal or don't allow it at all, while savings accounts let you withdraw anytime without penalty.
How to find the highest rate for your situation
Start by listing what you need from the account: Do you need to withdraw money frequently, or is this money you won't touch for months? Do you want a physical branch, or are you comfortable with online-only banking? Do you need a minimum balance, or do you want to start with a small deposit?
Once you know what you need, check rates at banks that meet those criteria. Online banks like Ally, Marcus, American Express Personal Savings, and Discover typically offer the highest rates. Credit unions may offer competitive rates if you are a member. Traditional banks rarely offer competitive rates on savings, but if you have other accounts there (checking, mortgage, credit card), staying at one bank might be worth a slightly lower rate for convenience.
Verify the rate on the bank's website directly before opening an account. Rate comparison sites are useful for narrowing your options, but banks change rates frequently, and a site updated yesterday may not show today's offer. Also check whether the rate applies to all balances or only balances above a certain threshold—some banks offer 4.5% on the first $25,000 and 1% on anything above that.
Frequently Asked Questions
Is the interest I earn on a savings account taxable?
Yes. Interest earned on a savings account is ordinary income and is taxed at your regular income tax rate. Banks report interest over $10 to the IRS on a Form 1099-INT. If you earned $500 in interest across all accounts, you report that $500 as income on your tax return. The higher your tax bracket, the more of that interest goes to taxes rather than your pocket.
Can I lose money in a savings account?
No, as long as your balance is under $250,000 and the bank is FDIC-insured. The FDIC (Federal Deposit Insurance Corporation) guarantees that if the bank fails, you get your money back up to $250,000 per account. Your balance will never go down due to the bank's failure. Interest rates can go down, so your earnings might be lower than you expected, but your principal is protected.
Why do some banks offer 5% when others offer 0.01%?
Online banks offer high rates because they have low overhead and compete aggressively for deposits. Traditional banks offer low rates because they rely on existing customer relationships and don't need to attract new deposits with high rates. Both are making a business decision about how much to pay savers. Online banks bet they can attract more deposits with higher rates; traditional banks bet they can keep deposits without offering competitive rates.
What happens to my interest if I withdraw money mid-month?
Most banks calculate interest daily based on your balance, so if you withdraw money mid-month, you earn interest only on the balance you held. If you had $10,000 for 15 days and $5,000 for 15 days, you earn interest on roughly $7,500 for the month. Some banks use different methods (like calculating interest on your lowest balance during the month), so check your bank's policy.
Should I move my money to a higher-rate bank?
If your current bank pays under 1% and you have more than $5,000 in savings, moving to a bank paying 4% or higher will earn you hundreds of dollars per year. The move takes 10 minutes online. If your balance is small (under $1,000), the difference in dollars is small enough that convenience might matter more. If your bank recently raised rates to match competitors, there is no reason to move.