What you earn depends on the bank, the account type, and the current rate environment
A savings account earning rate varies widely. A big national bank might offer 0.01% annual percentage yield (APY), meaning $10,000 earns $1 per year. An online bank might offer 4.5% APY on the same $10,000, earning $450 per year. The difference comes down to three things: which bank you use, what kind of account it is, and what the Federal Reserve has set as its benchmark rate.
Right now, rates are higher than they were in 2020 and 2021, when many savings accounts earned less than 0.05%. But rates change. The Federal Reserve raises and lowers its target rate based on inflation and economic conditions, and banks adjust their savings rates in response—usually within weeks. This means the rate you see today may not be the rate you earn next quarter.
The only way to know what you will actually earn is to check the current APY at the specific bank where you keep your money, then do the math yourself. A calculator is faster than guessing.
Key Takeaways
- Online banks typically offer 4% to 5% APY on savings accounts, while traditional brick-and-mortar banks often offer 0.01% to 0.5%.
- APY is the rate you earn in a year, stated as a percentage of your balance; multiply your balance by the APY to estimate annual earnings.
- Rates change when the Federal Reserve adjusts its benchmark rate, usually within weeks of an announcement.
- The bank can lower your rate at any time, so the APY you see today is not locked in for the year unless the account terms say otherwise.
- High-yield savings accounts and money market accounts typically earn more than regular savings accounts at the same bank.
How to calculate what you will earn
The math is straightforward. Take your account balance, multiply it by the APY, and divide by 100. If you have $5,000 in an account earning 4.5% APY, you earn $5,000 × 4.5 ÷ 100 = $225 per year, or about $18.75 per month.
That assumes your balance stays the same all year. If you add money regularly, you earn interest on the new deposits too, but only from the day they land in the account. If you withdraw money, you earn less that month. Banks calculate interest daily or monthly depending on their terms, so the exact amount may be a few dollars off, but this formula gives you the real picture.
The APY already includes the effect of compounding—the way interest earns interest. You do not need to calculate that separately. The APY is the number that matters.
Why rates differ so much between banks
Online banks offer higher rates because they have lower overhead. They do not pay for branch buildings, tellers, or the staff to run them. They pass some of that savings to customers in the form of higher APY. A bank like Ally or Marcus can afford to pay 4.5% APY because they spend far less to operate than Bank of America or Wells Fargo.
Traditional banks also use savings accounts as a way to fund loans. They take your deposits and lend them out at a higher rate. If they can get deposits cheaply—by offering 0.01% APY—they keep more of the spread. Online banks compete harder for deposits because they have fewer customers walking in the door, so they offer better rates to attract money.
Account type matters too. A regular savings account earns less than a high-yield savings account at the same bank. A money market account may earn slightly more than a savings account but comes with check-writing privileges and withdrawal limits. Certificates of deposit (CDs) lock your money away for a set term but often pay more than any savings account.
What happens when the Federal Reserve changes rates
The Federal Reserve does not set savings account rates directly. Instead, it sets a target range for the federal funds rate—the rate banks charge each other for overnight loans. When the Fed raises that rate, banks have more incentive to offer higher savings rates to attract deposits. When the Fed cuts rates, banks lower savings rates because they need deposits less urgently.
The lag is usually short. After a Fed announcement, online banks often adjust their rates within days. Traditional banks may take weeks or longer. If the Fed cuts rates by 0.5%, you might see your savings APY drop from 4.5% to 4.0% within a month or two.
The Fed has raised rates significantly since 2022 to fight inflation. That is why savings rates are much higher now than they were in 2020. If inflation cools and the Fed starts cutting rates again, expect savings rates to fall. There is no way to lock in today's rate for years—most savings accounts let the bank change the rate whenever it wants, with notice.
High-yield savings accounts versus regular savings accounts
A high-yield savings account is just a savings account with a higher APY. It is not a different product category; it is the same FDIC-insured account, but the bank pays more interest. The trade-off is usually that you cannot walk into a branch to deposit or withdraw money. You transfer funds electronically or by mail.
At a traditional bank, a regular savings account might earn 0.01% to 0.5% APY. A high-yield savings account at the same bank might earn 4.0% to 4.5%. The difference is real money. On $10,000, that is $1 to $50 per year versus $400 to $450 per year.
Some banks offer both and let you choose. Others, like online-only banks, offer only high-yield accounts because that is their whole business model. If you have money sitting in a regular savings account at a big bank, moving it to a high-yield account—even at the same bank—can double or triple what you earn.
How to find the current best rates
Savings rates change constantly, so there is no single "best" rate that stays true for months. What you can do is check a few reliable sources to see what banks are offering right now, then open an account at one that fits your needs.
Bankrate, DepositAccounts, and the Federal Reserve's own data show current rates at major banks. You can also visit a bank's website directly and look for the APY on its savings account page. The APY must be displayed clearly by law, usually near the account name or in a table of rates.
When you compare, look at the APY, not the interest rate. APY includes compounding and is the number that tells you what you actually earn. Also check whether the bank has a minimum balance requirement or monthly fees that could eat into your earnings.
What you should know about rate changes and account terms
Banks can lower your savings rate at any time, usually with 30 days' notice. They cannot raise it without notice, but they can cut it whenever they want. This is different from a CD, where the rate is locked in for the term you choose.
Some banks offer promotional rates—a higher APY for a limited time, like 5.0% for the first three months, then 4.5% after that. Read the fine print to see when the promotional period ends and what the regular rate will be.
If you are unhappy with your rate, you can move your money to another bank. There is no penalty for closing a savings account, and transfers usually take one to three business days. Many people keep accounts at multiple banks to chase the best rates, though that adds complexity to tracking your money.
Frequently Asked Questions
How often does the bank pay interest into my account?
Most banks calculate interest daily but deposit it monthly. Some deposit it quarterly. Check your account terms to see the schedule. The APY is the same either way—it is the annual total, regardless of how often it is paid out.
If I withdraw money mid-month, do I lose all the interest I earned that month?
No. Banks calculate interest on a daily balance, so you earn interest on the money you had in the account each day. If you withdraw halfway through the month, you earn interest on the first half of the month's balance, then a lower amount for the second half. You do not forfeit the whole month.
Is the APY may provide, or can the bank change it anytime?
The bank can change it anytime with notice, usually 30 days. The rate you see today is not locked in unless the account terms specifically say it is. Always assume the rate can move, especially if the Federal Reserve changes its benchmark rate.
Why does my bank pay almost no interest when online banks pay 4% or more?
Traditional banks have higher operating costs and use savings accounts to fund loans at a wider profit margin. Online banks have lower overhead and compete for deposits by offering higher rates. If you are earning less than 1%, moving your money to an online bank could earn you hundreds of dollars more per year on the same balance.
Do I have to pay taxes on the interest I earn?
Yes. Interest earned on a savings account is taxable income. Your bank will send you a 1099-INT form at the end of the year if you earned $10 or more in interest. You report it on your tax return. This is separate from the interest rate itself—it does not affect how much the bank pays you, but it affects how much you keep after taxes.