Most regular savings accounts earn between 0.01% and 0.05% APY right now, though some banks offer slightly higher rates

A regular savings account at a traditional bank—the kind you open at a branch or online—typically earns very little interest. The exact rate depends on which bank you use and when you opened the account. Some accounts earn 0.01% APY, meaning $10,000 would earn about $1 per year. Others pay 0.05% APY, which would earn $5 per year on that same $10,000. A few banks have raised rates to 0.10% or slightly higher, but these are exceptions, not the standard.

The reason the rates are so low is that banks use your deposits to lend money to other customers at much higher rates. They keep the difference as profit. Your interest rate reflects what the bank is willing to pay to hold your money—which is very little, since they have plenty of deposits already. When the Federal Reserve raises or lowers its benchmark interest rate, banks eventually adjust savings account rates, but they typically move slowly and by smaller amounts than the Fed's changes.

The rate you see advertised is the Annual Percentage Yield (APY), which includes the effect of compounding—interest earned on your interest. At the rates most regular savings accounts pay, compounding makes almost no practical difference. The real takeaway is that regular savings accounts are meant for safety and access, not for growing money.

Key Takeaways

  • Regular savings accounts at traditional banks typically earn 0.01% to 0.05% APY, with some banks offering up to 0.10% or slightly higher.
  • The interest you earn depends on your specific bank and account type, not on how much money you deposit or how long you keep it there.
  • Banks pay low rates because they use your deposits to lend at much higher rates, and they have no shortage of customer deposits.
  • High-yield savings accounts at online banks or credit unions often pay 4% to 5% APY, which is 50 to 100 times more than a regular account.

Why regular savings accounts pay so little

Banks set savings account rates based on what they need to attract deposits and what they can earn by lending that money out. When interest rates across the economy are low, banks have little incentive to pay you much. When rates are high, they may pay more to compete for deposits. Right now, the Federal Reserve's benchmark rate is higher than it has been in years, but most traditional banks have not raised regular savings account rates much—they are raising rates on money market accounts and certificates of deposit instead, because those products attract customers who shop around.

A regular savings account is a demand deposit, meaning you can withdraw your money anytime without penalty. That flexibility costs the bank money, because they cannot count on having your funds for any set period. High-yield savings accounts are also demand deposits, but they pay much more because they are offered by online banks with lower overhead costs and by credit unions that operate on a nonprofit basis. A traditional bank's regular savings account is designed to be convenient and safe, not to be competitive on rate.

How to find out what your account actually earns

Your bank is required to disclose the APY on your account in writing, either in the account agreement you signed or in a document called the Truth in Savings disclosure. You can also call your bank's customer service line or log into your online banking portal to find the current rate. The rate may have changed since you opened the account, so checking is worth doing.

If you have an old savings account that you opened years ago, the rate is almost certainly lower than what new customers are offered. Banks often pay lower rates to existing customers and advertise higher rates to new ones. Switching to a new account at the same bank or moving to a different bank can sometimes increase your rate, though you will lose any relationship benefits or account history.

How much interest you will actually earn

At 0.01% APY, a $1,000 balance earns about 10 cents per year. At 0.05% APY, it earns 50 cents per year. At 0.10% APY, it earns $1 per year. These amounts are paid monthly or quarterly, depending on the bank's schedule. The interest is taxable income, so you will receive a 1099-INT form at the end of the year if you earned $10 or more in interest across all your accounts at that bank.

Compounding happens automatically—the bank adds interest to your balance, and then the next interest payment is calculated on the new, slightly higher balance. But at these rates, the effect is negligible. On a $10,000 balance at 0.05% APY, compounding adds less than a penny to your annual earnings.

Regular savings accounts versus other places to keep money

The main advantage of a regular savings account is safety and access. Your deposits are insured up to $250,000 per depositor per bank by the Federal Deposit Insurance Corporation (FDIC), and you can withdraw money anytime without penalty. The tradeoff is a very low interest rate.

If you want to earn more interest while keeping your money safe and accessible, a high-yield savings account is the direct alternative. These accounts are also FDIC-insured and allow anytime withdrawals, but they typically pay 4% to 5% APY—50 to 100 times more than a regular account. The catch is that high-yield accounts are usually offered by online banks or credit unions, not by traditional brick-and-mortar banks. They work just like a regular savings account, but you manage them through a website or app instead of visiting a branch.

A money market account is a hybrid product that combines some features of a savings account and a checking account. It usually pays more interest than a regular savings account but less than a high-yield savings account, and it may include a debit card or checkbook. A certificate of deposit (CD) locks your money away for a set period—anywhere from three months to five years—in exchange for a higher interest rate. If you withdraw early, you pay a penalty.

What happens to your rate when the Federal Reserve changes rates

The Federal Reserve does not set savings account rates directly. It sets the federal funds rate, which is the interest rate banks charge each other for overnight loans. When the Fed raises or lowers this rate, it eventually affects the rates banks offer to customers, but the timing and amount vary widely.

Banks are usually quick to raise savings account rates when the Fed raises rates, because they want to attract deposits. They are much slower to lower rates when the Fed cuts, because they want to keep customers from moving their money. In practice, regular savings account rates lag behind Fed changes by weeks or months, and they move by smaller amounts. A 0.25% Fed rate increase might result in a 0.01% or 0.02% increase to your savings account rate, if the bank raises it at all.

Frequently Asked Questions

Can I earn more interest by keeping a larger balance in a regular savings account?

No. The interest rate is the same regardless of your balance. A $100 balance and a $100,000 balance earn the same APY. The larger balance will earn more dollars in total interest, but the rate itself does not change based on how much you have.

Do I lose interest if I withdraw money from my savings account?

No. Interest is calculated on your average daily balance or ending balance, depending on the bank's method. Withdrawals reduce the balance going forward, so you earn less interest on the smaller amount, but you do not lose interest you have already earned. There is no penalty for withdrawals from a regular savings account.

Is the interest rate on a savings account may provide to stay the same?

No. Banks can change savings account rates anytime, usually with a few days' notice. They are required to notify you of rate changes, but they do not need your permission. If your rate drops and you want a higher rate, you can move your money to a different account or bank.

Why do online banks pay so much more interest than traditional banks?

Online banks have lower operating costs because they do not maintain physical branches. They pass some of those savings to customers in the form of higher interest rates. Credit unions also pay higher rates because they are nonprofit organizations that return earnings to members rather than to shareholders.

Will my savings account interest be taxed?

Yes. Interest earned on a savings account is taxable income. If you earn $10 or more in interest at a bank during the year, the bank will send you a 1099-INT form, and you will report that income on your tax return. The interest is taxed at your ordinary income tax rate, not at a special rate.