Most savings accounts earn between 0.01% and 5.35% APY right now, depending on the bank and account type

The interest your savings account earns depends almost entirely on which bank you choose and what type of account you open. A traditional savings account at a large national bank might earn 0.01% APY, meaning $10,000 would earn about $1 per year. A high-yield savings account at an online bank might earn 4.5% to 5.35% APY on the same $10,000, earning $450 to $535 per year. The difference is real money, and it comes down to how much the bank pays for the right to hold your deposits.

Interest rates change constantly — sometimes weekly — because they follow the federal funds rate set by the Federal Reserve. When the Fed raises rates, banks raise what they pay depositors. When the Fed lowers rates, banks lower what they pay. Right now, rates are higher than they have been in years, which is why you might see savings accounts advertising 5% or more. That will not last forever.

Key Takeaways

  • Large national banks typically pay 0.01% to 0.05% APY on regular savings accounts, while online banks and credit unions often pay 4% to 5.35% APY on the same type of account.
  • Money market accounts and certificates of deposit (CDs) usually pay higher rates than savings accounts, but money market accounts have withdrawal limits and CDs lock your money away for a set time.
  • The interest rate you see advertised is the APY (annual percentage yield), which already includes the effect of compounding — how often interest is added to your balance.
  • Your rate can change at any time after you open the account, so a 5% savings account today might pay 3% next year if the Fed lowers rates.
  • The bank you choose matters far more than the account type — switching from a national bank to an online bank can earn you hundreds of dollars per year on the same balance.

Why big banks pay so little and online banks pay more

A large national bank like Chase or Bank of America pays very little interest because they do not need your deposits to stay competitive. They have millions of customers, many of whom keep money there out of habit or convenience. They can afford to pay 0.01% because most people will not move their account for an extra $10 per year.

An online bank like Marcus, Ally, or Wealthfront has no physical branches and lower overhead costs. To attract deposits, they pass those savings to you in the form of higher interest rates. They compete on rate alone, so they have to pay attention to what other online banks are offering. If Marcus drops to 4.5% and Ally stays at 5%, customers move their money to Ally. This competition keeps rates higher than you will find at a branch bank.

Credit unions, which are member-owned rather than shareholder-owned, often pay rates closer to online banks. Some credit unions pay 4% to 5% on savings accounts, though rates vary widely depending on the union and your membership status.

How account type affects the rate you earn

Within the same bank, different account types pay different rates. A regular savings account typically pays the lowest rate. A money market account usually pays more, but it limits how many times you can withdraw per month — usually six withdrawals before fees kick in. A certificate of deposit (CD) pays the highest rate, but you agree to leave your money untouched for a set period: three months, six months, one year, five years, or longer. If you withdraw early, you pay a penalty.

Right now, a one-year CD might pay 5.35% APY while a savings account at the same bank pays 4.75% APY. The difference is small, but it reflects the bank's reward for knowing your money will stay put. A three-month CD pays less than a one-year CD because the bank has less time to use your money.

If you need access to your money, a high-yield savings account is usually the best choice. If you know you will not touch the money for a year or more, a CD locks in a rate that cannot drop, which is valuable if the Fed starts lowering rates.

How compounding affects the total interest you earn

The APY you see advertised already includes compounding — the process of earning interest on your interest. If a bank pays 5% APY and compounds daily, your interest is calculated and added to your balance every single day. The next day, you earn interest on the slightly larger balance. Over a year, this adds up to slightly more than 5% of your original deposit.

The difference between daily compounding and monthly compounding is small on a savings account, but it matters more on larger balances and higher rates. On $10,000 at 5% APY, daily compounding versus monthly compounding might earn you a few dollars more per year. On $100,000, the difference could be $20 or $30.

You do not have to calculate this yourself. The APY already reflects it. If a bank advertises 5% APY, you will earn 5% per year regardless of how often they compound, as long as you leave the money untouched.

What happens when the Federal Reserve changes rates

The Federal Reserve does not set the interest rate your bank pays you. It sets the federal funds rate, which is the rate banks charge each other to borrow overnight. When the Fed raises this rate, banks raise what they pay depositors because deposits become more valuable to them. When the Fed lowers the rate, banks lower what they pay because deposits become less valuable.

This means the 5.35% you see today might drop to 4% next year if the Fed cuts rates. Your rate can change at any time after you open the account — banks can lower rates without your permission. However, if you open a CD, your rate is locked in for the entire term. A one-year CD at 5.35% will pay 5.35% for the full year, even if rates drop to 2% after three months.

This is why some people open CDs when rates are high — they lock in a good rate before it drops. Others keep money in savings accounts when rates are rising, betting that rates will go higher before they move the money to a CD.

How to compare rates across banks

The easiest way to compare is to visit the websites of banks you are considering and look for the APY listed on their savings account page. Write down the rate, the account type, and the minimum balance required. Some banks pay higher rates only if you maintain a certain balance — $25,000 or $100,000, for example.

Websites like Bankrate, DepositAccounts, and the FDIC's National Rates and Rate Caps page list current rates across many banks. These sites update frequently, though not always in real time. The rate you see might have changed by the time you open an account, so always check the bank's own website before you transfer money.

When comparing, look at the APY, not the interest rate. APY already includes compounding, so it is the true number to compare. Also check whether the bank requires a minimum balance to earn the advertised rate, and whether there are monthly fees that would eat into your interest.

The real impact of choosing the right bank

On a $10,000 balance, the difference between 0.01% at a national bank and 5% at an online bank is about $500 per year. On $50,000, it is $2,500 per year. On $100,000, it is $5,000 per year. This is not theoretical — it is money that stays in your account instead of the bank's.

The catch is that you have to move your money, which takes a few days and feels like friction. Many people leave money at a bank that pays almost nothing because switching feels like work. If you have a substantial emergency fund or other savings sitting in a low-rate account, moving it to a high-yield account takes about 15 minutes and can earn you hundreds of dollars per year with zero additional effort.

The other catch is that high rates do not last. When the Fed eventually lowers rates — which it always does eventually — online banks will lower their rates too. The advantage of online banks is that they tend to lower rates more slowly than national banks raise them, so you still come out ahead over time.

Frequently Asked Questions

Is my money safe in an online bank that pays high interest?

Yes, as long as the bank is FDIC-insured. FDIC insurance protects up to $250,000 per account type per bank, whether the bank has branches or not. Check the bank's website for the FDIC insurance logo, or search the FDIC's BankFind tool to confirm. Online banks are regulated the same way as branch banks.

Can I move my money to a different bank if rates drop?

Yes, you can move money between banks at any time with no penalty — savings accounts have no early withdrawal fee. It takes three to five business days for the transfer to complete. If you open a CD and rates drop, you are locked in at your original rate, which is actually good for you in that scenario.

What if I need the money before a CD matures?

You can withdraw it, but you will pay an early withdrawal penalty. The penalty is usually three to six months of interest. On a one-year CD paying 5%, the penalty might be about $25 on a $10,000 deposit. Check the CD terms before you open it to know what the penalty is.

Do I have to keep a minimum balance to earn the advertised rate?

Many banks do, but not all. Some online banks pay their advertised rate on any balance, even $1. Others require $25,000 or more. Check the account details on the bank's website — the minimum balance requirement is always listed near the APY.

How often is interest added to my account?

Most banks add interest monthly or daily. Daily compounding earns slightly more, but the difference is small on savings accounts. The APY already reflects how often interest is compounded, so you do not need to choose based on compounding frequency — choose based on the APY itself.