1% APY is below what most banks offer right now, but whether it's "good" depends on what you're comparing it to
A 1% annual percentage yield means that if you keep $10,000 in the account for a full year without touching it, you'll earn $100 in interest. That's the straightforward math. Whether that rate is worth your time depends on three things: what other banks are paying at this moment, what type of account it is, and what you're using the account for.
As of late 2024, most online banks pay between 4% and 5.35% APY on savings accounts. A brick-and-mortar bank or credit union might pay 0.01% to 0.5%. So 1% sits in the middle—better than a traditional bank, worse than an online savings account, but not dramatically worse than a money market account at a credit union.
The real question is whether you're locked into 1% or whether you can move your money. If it's a promotional rate that expires, or if you can switch banks without penalty, 1% is a reason to look elsewhere. If it's the rate your credit union pays and you value the other services they offer, it might be worth staying.
Key Takeaways
- 1% APY is lower than online savings accounts (typically 4% to 5.35%) but higher than traditional bank savings (usually under 0.5%).
- The difference between 1% and 5% on $10,000 is $400 per year, which compounds over time.
- If 1% is a promotional rate with an expiration date, it will drop to a lower rate once the promotion ends.
- The best rate for you depends on whether you need the account for other reasons—like credit union membership benefits or checking account bundling.
How 1% compares to what's available now
Online banks consistently offer the highest rates because they have lower overhead costs than physical branches. As of this writing, accounts at banks like Marcus, Ally, and American Express offer rates between 4.5% and 5.35%. Credit unions often pay between 2% and 4%, depending on the institution and account type. Traditional banks—the ones with branches on your street—typically pay 0.01% to 0.5%.
If your bank is offering 1%, ask whether it's a promotional rate or the standard rate. Promotional rates are temporary—they might last three months or a year, then drop to 0.01%. Standard rates are what you'll earn after any promotion ends. A 1% standard rate is unusual; most banks either pay much less or much more.
The gap matters more the longer you keep money in the account. On $5,000, the difference between 1% and 5% is $200 per year. On $50,000, it's $2,000 per year. Over five years, that gap compounds.
When 1% might actually be reasonable
A 1% rate makes sense in a few specific situations. If you're using a money market account at a traditional bank and they're paying 1%, that's better than their savings account rate, and money market accounts sometimes come with check-writing privileges. If you're at a credit union that pays 1% on savings but offers other benefits—lower loan rates, no monthly fees, better customer service—the rate alone isn't the whole picture.
If the account is a promotional rate that expires in a few months, 1% is fine for the short term. You can use that time to research better options and move your money before the rate drops. If you're comparing a 1% account to keeping cash in a checking account that pays nothing, 1% is clearly better.
The account type also matters. A 1% rate on a certificate of deposit (CD) that locks your money for one year is different from a 1% rate on a savings account where you can withdraw anytime. CDs are meant to be long-term, so a lower rate is more acceptable. Savings accounts are meant to be flexible, so you should expect a higher rate.
The cost of staying with 1% instead of switching
Let's use a concrete example. You have $20,000 in a savings account earning 1% APY. An online bank offers 5% APY. Over one year, the difference is $800. Over five years, assuming rates stay the same and you don't add or withdraw money, the difference is closer to $4,200 when you account for compounding.
Switching banks takes about 15 minutes if you do it online. You'll need your account number from your current bank, and you'll set up a new account at the new bank. Most online banks let you transfer money electronically within a few days. There's no fee to close a savings account at most banks.
The main reason not to switch is if you're using the account for something other than savings—like a checking account where you pay bills, or an account linked to a debit card you use regularly. If it's purely a savings account and you're not using it for anything else, the math usually favors switching.
How to check if your bank's rate is competitive
Visit the websites of three to five banks you've heard of—both online banks and traditional banks. Look for the savings account rate, which should be listed prominently on their homepage or in a rates section. Write down the APY and the account name. Then compare them side by side.
Pay attention to any conditions. Some banks offer high rates only on the first $25,000, then pay less on balances above that. Some require a minimum deposit to open the account. Some require you to make a certain number of deposits per month to earn the advertised rate. These details change the real value of the rate.
Check whether the rate is fixed or variable. A fixed rate stays the same for as long as you hold the account. A variable rate can change whenever the bank decides, usually when the Federal Reserve changes interest rates. Most savings accounts are variable, which means the 5% you see today might be 3% in six months if the Fed cuts rates.
What happens to 1% if interest rates drop
Interest rates on savings accounts follow the Federal Reserve's benchmark rate. When the Fed raises rates, banks raise savings rates. When the Fed cuts rates, banks cut savings rates. If you're earning 1% now and the Fed cuts rates, your bank will likely cut your rate too—possibly to 0.5% or lower.
This is why the current rate environment matters. If rates are high and expected to stay high, locking in a rate through a CD might make sense. If rates are expected to fall, a high-yield savings account with a variable rate is fine because you're earning the best available rate right now. A 1% rate in a falling-rate environment is especially weak because it will only get worse.
The opposite is also true. If rates are expected to rise, a 1% rate is even worse because you're missing out on the gains coming. You'd be better off waiting for rates to rise, or switching to a bank that's already raised their rates in anticipation.
Frequently Asked Questions
Is 1% APY better than keeping money in a checking account?
Yes. Most checking accounts pay 0% or close to it. A 1% savings account will earn you money just for keeping it there. However, if your checking account offers a promotional rate (some do), compare that rate to 1% before deciding.
Will my 1% rate stay at 1% forever?
No. Savings account rates are variable, meaning your bank can change them anytime. If it's a promotional rate, it will definitely drop when the promotion ends. Even standard rates change when the Federal Reserve adjusts interest rates.
How much money do I need to earn meaningful interest at 1%?
At 1%, you earn $10 per year on $1,000, $100 per year on $10,000, and $1,000 per year on $100,000. The amount is meaningful to you depends on your situation, but most people notice the difference once they have $10,000 or more in the account.
Should I move my money if my bank drops from 1% to 0.5%?
That depends on how much money is in the account and whether you use the account for other reasons. If it's $50,000 and you're only using it for savings, the difference ($250 per year) might justify switching. If it's $5,000 and you like your bank otherwise, staying might be simpler.
Can I get a better rate by opening a CD instead of a savings account?
Sometimes. CDs often pay slightly more than savings accounts because your money is locked in for a set period. However, you can't withdraw the money without a penalty. If you might need the money within the CD term, a savings account is more flexible, even if the rate is slightly lower.