Banks pay between 0.01% and 5.35% APY on savings accounts, depending on the bank, account type, and current market conditions

The rate your bank pays you is not fixed—it moves with the Federal Reserve's interest rate decisions and with competition between banks. A traditional savings account at a large national bank like Chase or Bank of America currently pays around 0.01% to 0.05% APY. A high-yield savings account at an online bank like Marcus, Ally, or American Express pays much more, typically between 4.5% and 5.35% APY as of late 2024. The difference matters: on $10,000, you earn roughly $1 per year at 0.01% but $450 to $535 per year at 4.5% to 5.35%.

Banks set their own rates within limits set by the Federal Reserve. When the Fed raises its benchmark rate, banks gradually raise what they pay depositors—but they do not always raise it as much or as fast as they raise what they charge borrowers. When the Fed cuts rates, banks cut deposit rates faster than they cut loan rates. This is how banks make money: the gap between what they pay you and what they charge borrowers.

Key Takeaways

  • Online banks and credit unions typically pay 4% to 5.35% APY on savings, while large national banks pay 0.01% to 0.05% APY for the same type of account.
  • The rate you receive depends on the bank's business model, the account type (regular savings versus money market), and how much money you deposit.
  • Banks change their rates without notice, so the rate you see today may be lower next month if the Federal Reserve cuts rates.
  • Your deposits are insured up to $250,000 per account type per bank by the FDIC, so a lower rate at a large bank does not mean your money is safer.

Why rates differ so much between banks

Large national banks pay less because they do not need to compete for deposits. Customers come to Chase or Bank of America for convenience—branch locations, name recognition, and bundled services—not for the interest rate. These banks can afford to pay 0.01% because people keep money there anyway.

Online banks have no branches and no brand loyalty. They compete entirely on rate. Marcus, Ally, and American Express have lower overhead costs than physical banks, so they can afford to pass more of their earnings to depositors. They also tend to be subsidiaries of larger financial institutions (Marcus is owned by Goldman Sachs, Ally by Ally Financial), which gives them access to cheap funding.

Credit unions often pay higher rates than national banks but lower than the best online banks, typically 3% to 4.5% APY. Credit unions are member-owned, not shareholder-owned, so they return profits to members rather than investors. Some credit unions offer promotional rates of 5% or higher on savings accounts, but these usually explore only to the first $500 or $1,000 and drop to 0.5% or lower on balances above that.

How the Federal Reserve affects what you earn

The Federal Reserve does not set the exact rate banks pay you. It sets the federal funds rate—the rate banks charge each other to borrow overnight. Banks use this as a benchmark. When the Fed raises the federal funds rate, banks raise deposit rates. When the Fed cuts it, banks cut deposit rates.

The lag matters. When the Fed raises rates, online banks usually raise their savings rates within days or weeks. Large national banks often wait months or do not raise them at all. When the Fed cuts rates, all banks cut deposit rates quickly—sometimes within days. This is why your savings rate can drop suddenly even if you have done nothing wrong.

As of late 2024, the Federal Reserve's benchmark rate sits between 4.25% and 4.5%. If the Fed cuts rates in 2025, expect online savings rates to fall from their current 4.5% to 5.35% range to something closer to 3% to 4%. If the Fed raises rates, online banks will likely raise their rates further, though this is less common in recent years.

Account type affects your rate

A savings account is the most basic type. Banks can require you to wait a few days to withdraw money, though most do not enforce this. Rates on basic savings accounts are typically the lowest: 0.01% at national banks, 4% to 5% at online banks.

A money market account is a hybrid between a savings account and a checking account. You can write checks or use a debit card, but you usually have to maintain a higher minimum balance (often $2,500 to $10,000). Money market accounts often pay slightly higher rates than savings accounts at the same bank—sometimes 0.1% to 0.2% higher at national banks, or 4.5% to 5.5% at online banks.

A certificate of deposit (CD) locks your money away for a set period—3 months, 6 months, 1 year, 5 years. In exchange, the bank pays a higher rate. A 1-year CD at an online bank currently pays 4.5% to 5.5% APY. If you withdraw before the term ends, you pay a penalty (usually 3 to 6 months of interest). CDs are useful if you know you will not need the money and want to lock in a rate before the Fed cuts.

How much you deposit can change your rate

Most online banks pay the same rate on all balances, no matter how much you deposit. Marcus pays 5.35% APY on any balance from $1 to $1 million. Ally pays 4.6% APY on any balance.

Some banks and credit unions use tiered rates: you earn a higher rate on balances above a certain threshold. For example, a credit union might pay 0.5% on the first $500, then 3% on balances from $500 to $10,000, then 4% on anything above $10,000. This rewards larger deposits but penalizes smaller ones.

A few banks offer promotional rates for new customers. These are usually high for the first 3 to 6 months, then drop to the standard rate. Read the fine print: some promotions require a direct deposit or a minimum balance, and some explore only to new customers, not existing ones.

Your money is insured regardless of the rate

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per account type per bank. This means if the bank fails, you get your money back—up to $250,000—even if the rate was 0.01% or 5.35%. The insurance is the same whether you bank at Chase or at a small online bank.

This is why choosing a high-yield account at a smaller or online bank is not riskier than keeping money at a large national bank. You earn more interest and your money is just as safe. The only downside is convenience: you cannot walk into a branch, and customer service is usually by phone or chat, not in person.

If you have more than $250,000 to save, you can spread it across multiple banks to stay within the insurance limit at each one. Some people open accounts at 4 or 5 different online banks to earn high rates on $1 million or more while staying fully insured.

When to lock in a rate with a CD

If you believe the Federal Reserve will cut rates soon, a CD lets you lock in today's higher rate for months or years. A 1-year CD at 5.35% APY guarantees you that rate for 12 months, even if online savings rates fall to 3% by next year. The tradeoff is that your money is locked away—you cannot access it without paying a penalty.

If you think rates will rise, keep your money in a savings account instead. You can move it to a higher-paying account or a CD later if rates go up. Savings accounts have no penalty for withdrawal, so you have flexibility.

Most people benefit from splitting the difference: keep 3 to 6 months of expenses in a high-yield savings account for emergencies, and put longer-term savings into a 1-year or 2-year CD. This way you earn a higher rate on money you will not need soon, and you keep liquid money available for unexpected costs.

Frequently Asked Questions

Why does my bank pay me almost nothing on savings?

Large national banks pay low rates because they do not compete on interest. They make money from loans and fees, not from paying depositors. If you want higher interest, you need to move your money to an online bank or credit union. The FDIC insurance is identical, so your money is just as safe.

Can I lose money if I put it in a savings account?

No. A savings account cannot go down in value. You earn interest (however small), and your principal is insured by the FDIC up to $250,000. The only way to lose money is if inflation rises faster than your interest rate—your money buys less, but the account balance itself does not shrink.

What happens to my rate if the Federal Reserve cuts interest rates?

Your savings rate will fall, usually within days or weeks. Banks cut deposit rates faster than they cut loan rates, so you will earn less. If you want to lock in today's rate before a cut, move money into a CD. Once the rate is locked, it does not change, even if the Fed cuts multiple times.

Is my money safer at a big bank than at an online bank?

No. Both are insured by the FDIC up to $250,000 per account type. A big bank's failure is just as possible as a small bank's failure—the insurance protects you either way. The only real difference is convenience: big banks have branches, online banks do not.

Should I move all my money to a high-yield savings account?

If you want to earn more interest, yes—at least on money you are not spending soon. Keep enough at your main bank for bills and emergencies if you value the convenience of a branch. The rest can earn 4% to 5% at an online bank. There is no penalty for moving money between banks.