What savings accounts earn right now

The interest rate on a savings account depends on the bank and the type of account you open. As of early 2025, traditional savings accounts at large banks typically earn between 0.01% and 0.05% annual percentage yield (APY). Online banks and credit unions often pay higher rates—currently ranging from 4% to 5.35% APY on regular savings accounts, with some money market accounts paying slightly more.

The difference matters. On a $10,000 balance, a traditional bank paying 0.02% APY would earn you about $2 per year. The same $10,000 at an online bank paying 4.5% APY would earn roughly $450 per year. That gap widens as your balance grows or as you leave money in the account longer.

Rates change frequently—sometimes weekly—based on what the Federal Reserve does with its benchmark interest rate. When the Fed raises rates, banks eventually raise what they pay depositors. When the Fed cuts rates, savings account yields typically fall within weeks or months.

Key Takeaways

  • Online banks and credit unions currently pay 4% to 5.35% APY on savings accounts, while large traditional banks pay 0.01% to 0.05%.
  • The interest you earn is calculated daily but usually paid monthly, and the amount depends on your balance and how long money stays in the account.
  • Rates are not locked in—they can change at any time, and banks can lower what they pay you without notice.
  • Money market accounts and high-yield savings accounts are the same product with different names; the rate matters more than the label.
  • Switching banks to a higher-paying account can add hundreds of dollars per year to your earnings on the same balance.

How interest is calculated and paid

Banks calculate interest daily using your account balance. They take the APY, divide it by 365 days, and multiply by your balance each day. At the end of the month (or sometimes quarterly), they deposit the total interest earned into your account.

This means the exact amount you earn depends on when you deposit and withdraw money. If you deposit $5,000 on the 15th of a month with 30 days, you earn interest on that $5,000 for only 16 days that month, not the full 30. If you withdraw $2,000 on the 20th, you earn interest on a lower balance for the remaining days.

Some accounts also pay interest on the interest you've already earned—called compounding. Most savings accounts compound daily, which means your interest earns interest starting the day after it's deposited. Over years, this compounds into noticeably more money, though the effect is small in the first few months.

Why rates differ between banks

Large traditional banks pay less because they have high overhead costs—physical branches, staff, advertising—and they don't need to attract deposits aggressively. They rely on existing customers and brand recognition. Online banks have no branches and lower operating costs, so they pass savings to depositors through higher rates.

Credit unions are member-owned, not shareholder-owned, so they can return profits to members through better rates. They also tend to have smaller customer bases, so they compete harder for deposits.

Banks also adjust rates based on how much they need deposits at any given time. When the Fed is raising rates and money is expensive to borrow, banks raise savings rates to attract deposits. When rates are falling and borrowing is cheap, banks lower what they pay you faster than the Fed cuts its benchmark rate.

What happens when rates change

Your bank can change your savings rate at any time without your permission. They must notify you, usually by email or through your online account, but they don't need your approval. Some banks lower rates within days of a Fed rate cut; others wait weeks.

You have no lock-in period on savings accounts—you can move your money to a different bank whenever you want. There are no penalties for switching, though some banks require a minimum balance to earn the advertised rate. If your current bank drops its rate and you find a better one elsewhere, you can transfer your money and start earning more when ready.

Rates can also go up, though this happens less often than rate cuts. When the Fed raises rates, online banks typically raise savings rates within days or weeks to stay competitive.

Comparing accounts across different banks

The easiest way to compare is to look at the APY, not the interest rate. APY already includes the effect of compounding, so it's the true annual return. A bank advertising "4.5% APY" will earn you more than one advertising "4.48% APY," even if the difference seems small.

Check whether the advertised rate applies to all balances or only balances above a certain amount. Some banks pay higher rates only on balances over $25,000 or $100,000. If your balance is smaller, you might earn a lower rate than advertised.

Also verify whether the rate is may provide or promotional. A promotional rate might be 5% for three months, then drop to 0.5%. may provide rates stay the same until the bank changes them (which they can do anytime, but at least you know the current rate isn't temporary).

How much you'll actually earn

The amount of interest you earn depends on three things: your balance, the APY, and how long the money stays in the account. Use this formula: (Balance × APY ÷ 365) × Number of Days.

On a $25,000 balance at 4.5% APY for one full year, you'd earn $1,125. On the same balance at 0.03% APY (a typical large bank rate), you'd earn $7.50. The difference is $1,117.50 per year—real money that compounds over time.

If you're saving for a goal years away, the bank you choose matters significantly. A $50,000 balance earning 4.5% APY for five years grows to $62,361. The same balance at 0.03% APY grows to only $50,075. The difference is over $12,000 in lost earnings.

Frequently Asked Questions

Do I have to pay taxes on savings account interest?

Yes. Interest earned on savings accounts 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 this on your tax return. The tax you owe depends on your overall income and tax bracket.

Can a bank lower my rate without telling me?

No. Banks must notify you before lowering your rate, usually by email or through your online account. However, they can lower it whenever they want after notifying you. You have no contractual right to keep the same rate indefinitely.

Is my money safe if I move it to a bank with a higher rate?

Yes, as long as the bank is FDIC-insured (or NCUA-insured if it's a credit union). FDIC insurance protects up to $250,000 per depositor per bank. Check the bank's website or call to confirm it's insured before you move your money.

What's the difference between a savings account and a money market account?

They're essentially the same product. Money market accounts sometimes offer slightly higher rates and may include a debit card or checkwriting, but the core function is identical—you deposit money, earn interest, and can withdraw anytime. The rate matters more than the name.

Should I move my money if rates drop?

Only if the new rate is significantly lower than what other banks are paying. If your bank drops from 4.5% to 4.2% but competitors are at 4.8%, moving makes sense. If your bank drops to 4.7% and that's competitive, staying might not be worth the effort of transferring.