What you earn depends on the bank, the account type, and the current rate environment
The interest rate on a savings account is set by each bank individually. Right now, rates range from nearly 0% at some large national banks to around 4.5% to 5.35% at online banks and credit unions, though these numbers shift as the Federal Reserve changes its benchmark rate. The difference between a 0.01% account and a 5% account on $10,000 is roughly $500 per year—so the bank you choose matters enormously.
Your actual earnings also depend on whether the account compounds interest daily, monthly, or quarterly. Daily compounding means you earn interest on your interest more often, which adds up over time. A bank might advertise a 5% annual percentage yield (APY), but that's the number after compounding is factored in—it's the real return you'll see, not a starting point.
The rate you get is not negotiable at most banks. You don't haggle. You either open an account at that rate or you don't. Some banks offer slightly higher rates to new customers for a limited time, then drop the rate after a few months. Read the terms before you open the account.
Key Takeaways
- Online banks and credit unions typically offer 4% to 5.35% APY on savings accounts, while large national banks often offer less than 1%.
- The APY figure already includes the effect of compounding, so it represents your true annual return.
- Interest rates change when the Federal Reserve adjusts its benchmark rate, usually several times per year.
- Banks can lower your rate at any time with notice, so the rate you open with may not be the rate you keep.
- Moving money between banks takes three to five business days, so switching to a higher rate is possible but not when ready.
How banks decide what rate to offer
Banks set savings rates based on what they can earn by lending your money out, minus their operating costs and profit margin. When the Federal Reserve raises its benchmark rate, banks have more room to pay depositors higher rates and still make money on loans. When the Fed cuts rates, banks cut what they pay you.
Online banks tend to offer higher rates than brick-and-mortar banks because they have lower overhead—no branches, fewer employees, cheaper real estate. That savings gets passed to depositors as higher APY. Credit unions, which are member-owned rather than shareholder-owned, also tend to offer competitive rates.
Banks also use rate promotions to attract new customers. You might see an offer like "5.5% APY for the first three months," which then drops to the standard rate. These promotions are real, but they're temporary. Factor in what the ongoing rate will be before you move your money.
What happens when the Federal Reserve changes rates
The Federal Reserve doesn't set savings account rates directly. Instead, it sets the federal funds rate, which is the interest rate banks charge each other for overnight loans. When that rate moves, savings rates usually follow within days or weeks.
When the Fed raises rates, banks raise what they pay on savings accounts—but not always by the same amount. A bank might raise its rate by 0.25% when the Fed raises by 0.25%, or it might raise by only 0.1%. There's no rule requiring them to pass along the full increase.
When the Fed cuts rates, banks cut savings rates faster than they raised them. You'll see your rate drop within weeks. This is one reason to lock in a good rate while they're available—you can't predict when rates will fall, but you can move your money to a higher-paying account before they do.
How to compare rates across banks
The APY is the only number you need to compare. Ignore the interest rate itself—that's a technical figure that doesn't account for compounding. APY is what you'll actually earn.
Check the rate on the bank's website, but also look at the fine print. Some banks advertise a high rate but only for balances above $100,000, or only for the first few months. The terms matter as much as the headline number.
Sites like Bankrate, DepositAccounts, and the FDIC's BankFind tool let you search by rate and see what's available in your region. You can also call banks directly and ask what rate they're currently offering on savings accounts. Most will tell you over the phone.
How long it takes to move money to a higher-rate account
Opening a new savings account takes 10 to 15 minutes online. Transferring money from your old bank to the new one takes three to five business days. During that time, your money is in transit and earning interest at neither bank (or at the old bank's rate, depending on the timing).
If you're moving a large balance, the three-to-five-day delay costs you something. On $50,000 moving from a 0.5% account to a 5% account, that delay costs roughly $6 in lost interest. It's not huge, but it's real. Plan your move for early in the week so the transfer completes before the weekend.
Some banks offer a "sweep" feature that automatically moves money between accounts, but this is usually for moving money out of savings, not into it. You'll initiate the transfer yourself through your old bank's website or app.
Why some accounts pay more than others
A high-yield savings account (HYSA) is just a savings account at a bank that chooses to pay a competitive rate. There's no special account type or regulatory category—it's marketing language. The bank is straightforward offering a better rate than its competitors.
Money market accounts sometimes pay slightly higher rates than savings accounts, but they also come with check-writing privileges and debit cards, which adds complexity. For pure savings, a regular high-yield savings account is usually simpler.
Certificates of deposit (CDs) pay higher rates than savings accounts, but you have to lock your money away for a set period—three months, six months, one year, five years. If you need the money before the CD matures, you pay an early withdrawal penalty. CDs make sense if you know you won't need the money for a specific length of time.
What happens if a bank lowers your rate
Banks can lower your savings rate at any time, usually with 30 days' notice. You'll see a notification in your account or receive an email. You're not locked in, and you don't have to accept the lower rate—you can move your money to another bank.
This is why it's worth checking rates every few months. If your bank drops its rate and competitors are offering more, moving takes a few days and costs nothing. Your old bank won't charge you to close the account.
Some people set a calendar reminder to check rates quarterly. If your bank falls behind, you move. It's not complicated, and over time it adds up to real money.
Frequently Asked Questions
Can I earn more interest by keeping a larger balance?
No. Most savings accounts pay the same APY on every dollar, whether you have $100 or $100,000. A few banks offer tiered rates where larger balances earn slightly more, but these are rare. Check the account terms to see if yours does.
What if I move money in and out of savings frequently?
The interest accrues daily, so you earn something on every dollar for every day it sits in the account. Moving money in and out doesn't reset the interest or cost you anything. You just earn interest on whatever balance is there each day.
Is the interest I earn taxable?
Yes. The bank will send you a 1099-INT form at the end of the year showing how much interest you earned, and you report that as income on your tax return. The interest is taxed as ordinary income at your marginal tax rate.
What happens to my interest if the bank fails?
Your account and all accrued interest are protected up to $250,000 by the FDIC (Federal Deposit Insurance Corporation) if the bank is FDIC-insured. Credit unions are protected by the NCUA up to the same amount. Check that your bank carries this insurance before you open an account.
Should I move my money every time rates change?
Not necessarily. Moving money costs time and has a three-to-five-day delay. If your current rate is within 0.5% of the best available rate, staying put is reasonable. If your bank is more than 1% behind, moving makes sense.