Current savings account rates range from 0.01% to 5.35% APY, depending on the bank and account type

The interest rate your savings account earns depends almost entirely on which bank you use and what type of account you open. A traditional savings account at a large national bank might pay 0.01% APY, meaning $10,000 would earn about $1 per year. A high-yield savings account at an online bank might pay 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 banks set their rates.

Banks set savings rates based on what the Federal Reserve charges them to borrow money. When the Fed's benchmark rate is high, banks can afford to pay more on deposits because they're earning more on loans. When the Fed rate drops, banks lower what they pay depositors. The second factor is competition: banks that want to attract deposits offer higher rates. Online banks typically pay more than brick-and-mortar banks because they have lower overhead costs and need to compete for customers they can't walk into a branch.

Key Takeaways

  • National banks typically pay 0.01% to 0.05% APY on standard savings accounts, while online banks pay 4.5% to 5.35% APY on high-yield accounts.
  • Your rate depends on the Federal Reserve's benchmark rate, which changes over time, and on how much competition exists in your bank's market.
  • Money market accounts and certificates of deposit (CDs) often pay slightly higher rates than savings accounts at the same bank.
  • The interest you earn is taxed as ordinary income, so your actual take-home return is lower than the stated APY.

Why big banks pay so little

Large national banks like Bank of America, Chase, and Wells Fargo typically pay 0.01% to 0.05% APY on savings accounts. On $10,000, that's $1 to $5 per year. These banks don't need to compete aggressively for deposits because customers often keep money there for convenience—the branch is nearby, they already have a checking account there, or they're not paying attention to the rate.

These banks also make money on overdraft fees, monthly maintenance fees, and minimum balance requirements. A savings account that pays almost nothing is still profitable for them because they're earning interest on loans while paying depositors almost nothing. If you have a savings account at a major national bank, you're essentially lending the bank your money at a rate they set, and they're keeping most of the spread.

How online banks offer higher rates

Online banks like Marcus, Ally, and American Express Personal Savings currently pay 4.5% to 5.35% APY. They can afford to pay more because they have no physical branches, no tellers, and no retail overhead. They also compete directly on rate—if Marcus raises its rate to 5.2%, Ally will raise theirs to match or exceed it within days. This competition is what keeps rates high.

Online banks still make money because they lend out deposits at higher rates than they pay. If they pay you 5.0% APY and lend that money out at 7% or 8%, the spread is their profit. The difference is that online banks operate on thinner margins and higher volume, so they can afford to pass more of their earnings to depositors.

Money market accounts and CDs often pay slightly more

Money market accounts (MMAs) and certificates of deposit (CDs) at the same bank typically pay 0.1% to 0.5% more than regular savings accounts. A money market account might pay 0.06% at a national bank while a regular savings account pays 0.01%. At an online bank, a money market account might pay 5.35% while a savings account pays 5.25%.

The trade-off is access. A money market account usually limits how many withdrawals you can make per month. A CD locks your money away for a set term—three months, six months, one year, five years—and charges a penalty if you withdraw early. If you need the money soon, a regular savings account is more practical even if it pays slightly less.

How the Federal Reserve rate affects what you earn

The Federal Reserve's benchmark rate, called the federal funds rate, is the interest rate banks charge each other for overnight loans. When the Fed raises this rate, banks' cost of borrowing goes up, so they raise what they pay on deposits to attract money. When the Fed cuts the rate, banks lower deposit rates because their borrowing costs fall.

From March 2022 to July 2023, the Fed raised rates aggressively, and savings account rates climbed from near zero to 5%+. If the Fed cuts rates in the future, you should expect savings rates to fall as well. This is why a 5.35% rate today might be 3% next year—not because the bank is being greedy, but because the Fed's rate has changed and the bank's cost of funds has dropped.

Tax on savings interest reduces your real return

The interest you earn on a savings account is taxed as ordinary income at your federal tax rate, plus state and local taxes if your state has income tax. If you earn $500 in interest and you're in the 24% federal tax bracket, you owe $120 in federal tax on that interest. Your actual take-home return is $380, not $500.

This matters more at higher balances and higher rates. On $100,000 earning 5% APY, you'd earn $5,000 in interest. In the 24% bracket, you'd pay $1,200 in federal tax, leaving you with $3,800. The after-tax return is 3.8%, not 5%. Banks report interest earned on Form 1099-INT, which you receive by January 31 each year and report on your tax return.

Comparing rates across banks takes minutes

Savings rates change constantly, sometimes daily. A rate that's highest today might be middle-of-the-pack next week. To find the current best rate, check comparison sites like Bankrate, DepositAccounts, or NerdWallet, which update rates multiple times per day. You can also visit banks' websites directly—the rate is usually displayed on the savings account product page.

When comparing, make sure you're looking at APY (annual percentage yield), not APR (annual percentage rate). APY includes the effect of compounding, so it's the true rate you'll earn. Also check whether there are minimum balance requirements, monthly fees, or limits on how many times you can withdraw per month. A rate that's 0.5% higher is worthless if there's a $25 monthly fee.

Frequently Asked Questions

Will savings rates go back down?

Rates follow the Federal Reserve's benchmark rate. If the Fed cuts rates, banks will lower what they pay on deposits. There's no way to predict when or by how much, but historically, rates have been much lower than they are now. Locking money into a CD can protect you if you want to may provide a rate for a set period.

Is there a penalty for moving money to a higher-rate bank?

No. You can open a savings account at a new bank and transfer your money without penalty. The only cost is your time. Some banks offer sign-up bonuses (typically $100 to $500) if you deposit a certain amount, so it can actually pay to switch.

Do I lose FDIC protection if I move to an online bank?

No. Online banks are FDIC-insured just like brick-and-mortar banks. Your deposits are protected up to $250,000 per account type per bank. Check the bank's website to confirm it displays the FDIC logo and insurance information.

What's the difference between APY and APR on a savings account?

APY (annual percentage yield) includes compounding—interest earned on interest. APR (annual percentage rate) does not. For savings accounts, APY is the number that matters because it shows what you'll actually earn. Banks are required to display APY prominently.

Can I earn more than 5.35% on savings?

Not in a standard savings account. Some credit unions and specialty banks occasionally offer rates slightly higher than 5.35%, but these are rare and often come with high minimum balances or other restrictions. CDs sometimes pay slightly more than savings accounts, but your money is locked away for a set term.