Banks pay you interest on savings accounts, money market accounts, and certificates of deposit, but the rate depends on the account type, the bank, and current Federal Reserve policy

When you deposit money into a bank account, the bank lends that money to other customers through mortgages, auto loans, and business credit lines. The bank keeps the difference between what it pays you and what it charges borrowers. How much you receive depends on what you're willing to do with your money — leave it untouched for a fixed term, accept lower rates for when ready access, or move it to a different institution.

The amount banks pay varies widely. A savings account at a major national bank might pay 0.01% annually on your balance, while an online bank's savings account might pay 4.5% or higher. A one-year certificate of deposit (CD) at the same online bank might pay 5.0%. These rates change constantly because they follow the federal funds rate, which the Federal Reserve adjusts roughly every six weeks.

The bank's size, location, and business model determine what it can afford to pay. Large banks with millions of customers and physical branches have higher costs and often pay less. Online-only banks have lower overhead and can pass more of their lending profit back to depositors. Credit unions, which are member-owned rather than shareholder-owned, sometimes pay higher rates on savings because they don't need to generate profits for investors.

Key Takeaways

  • Banks pay interest on savings accounts, money market accounts, and CDs, with rates ranging from nearly 0% at large national banks to 5% or higher at online banks.
  • The federal funds rate, set by the Federal Reserve, is the primary driver of what banks pay — when it rises, deposit rates rise; when it falls, banks lower what they pay you.
  • You can check current rates across banks using sites like Bankrate, DepositAccounts, or the banks' own websites, and rates change frequently enough that comparing before moving money is worth the time.
  • Certificates of deposit lock your money away for a set term (three months to five years) in exchange for a higher rate, while savings accounts let you withdraw anytime but pay less.
  • The FDIC insures deposits up to $250,000 per account type per bank, so moving money to a different bank for a higher rate carries no risk to your principal.

How the Federal Reserve's Rate Affects What You Earn

The Federal Reserve doesn't set deposit rates directly — banks choose their own. But the Fed sets the federal funds rate, which is the interest rate banks charge each other for overnight loans. When the Fed raises this rate, banks' cost of borrowing rises, so they raise what they pay depositors to attract money. When the Fed cuts the rate, banks lower deposit rates because they can borrow more cheaply.

The lag between a Fed rate change and a bank rate change is usually one to three weeks. When the Fed raised rates aggressively from 2022 to 2023, online banks quickly raised savings rates from 0.01% to 4% or higher. When the Fed paused rate increases in mid-2023, new rate increases slowed. If the Fed cuts rates, expect deposit rates to fall within weeks.

You can track the federal funds rate on the Federal Reserve's website or through financial news outlets. Knowing where the rate is in its cycle helps you decide whether to lock money into a CD now or wait for rates to potentially rise further.

What Different Account Types Pay

Banks offer several ways to earn interest, each with different trade-offs between rate and access:

Savings accounts let you withdraw money anytime without penalty. Rates are typically the lowest of all deposit products — currently 0.01% to 4.5% depending on the bank. You pay for flexibility with a lower rate.

Money market accounts are a hybrid. They pay higher rates than savings accounts (currently 0.5% to 5.0%) but often require a higher minimum balance and limit how many withdrawals you can make per month. Some also come with a debit card or checks.

Certificates of deposit (CDs) lock your money away for a fixed term — typically three months, six months, one year, three years, or five years. In exchange, the bank pays you a higher rate. A one-year CD might pay 5.0% while a savings account at the same bank pays 4.5%. If you withdraw before the term ends, you pay a penalty, usually equal to a few months of interest.

High-yield savings accounts are savings accounts offered by online banks that pay rates closer to CDs. They have no term, no withdrawal limits, and no minimum balance (at most banks), but the rate can change at any time. These currently pay 4.0% to 5.0% at competitive online banks.

Why Banks Pay Different Rates

A savings account at Chase might pay 0.01% while a savings account at Marcus (an online bank owned by Goldman Sachs) pays 4.5%. Both are safe — both are FDIC-insured — but the rates are vastly different. The difference comes down to cost structure and competitive pressure.

Chase has 4,700 branches, 16,000 ATMs, and millions of customers. It pays for buildings, staff, and marketing. It also has a captive customer base — many people keep accounts at Chase because they use the branch or because they've had an account there for years. Chase doesn't need to pay high rates to attract deposits.

Marcus has no branches and no physical presence. Its only cost is servers, customer service staff, and advertising. It competes entirely on rate. If Marcus paid 2% while a competitor paid 4%, customers would move their money when ready. Marcus must pay competitive rates to survive.

Credit unions often pay higher rates than banks because they're member-owned. A credit union doesn't need to generate profit for shareholders — any surplus goes back to members as higher rates or lower fees. But credit unions are smaller and have stricter membership rules. You might have to work for a specific employer or live in a specific area to join.

How to Find the Highest Rates

Deposit rates change constantly, sometimes daily. Checking your current bank's website tells you what it's paying, but that's only one data point. Comparison sites like Bankrate, DepositAccounts, and DepositAccounts.com aggregate current rates across hundreds of banks and let you filter by account type, term length, and minimum balance.

When you find a higher rate, moving money is straightforward. You open an account at the new bank (online, usually in 10 minutes), then initiate an ACH transfer from your old bank. The transfer takes one to three business days. Your old account remains open until you close it. There's no fee for moving money between banks, and the FDIC insures your deposits during the transfer.

The math is straightforward: if you have $10,000 in a savings account paying 0.01% and move it to one paying 4.5%, you earn $450 per year instead of $1. The effort takes an hour. Moving money for rate increases of 1% or more is almost always worth doing.

What Happens to Your Rate Over Time

When you open a CD, your rate is locked in for the entire term. A five-year CD opened at 5.0% will pay 5.0% for five years, even if rates fall to 1.0% next year. This is the trade-off for locking your money away — you get certainty.

Savings accounts and money market accounts have variable rates. The bank can change your rate at any time, usually with 30 days' notice. When the Fed cuts rates, banks lower deposit rates quickly. When the Fed raises rates, banks raise deposit rates more slowly. This asymmetry means you should move money to a higher-paying bank when rates rise, because your current bank will eventually lower its rate.

Some banks offer promotional rates on new accounts — a savings account might pay 5.5% for the first three months, then drop to 4.5%. Read the fine print before opening. The promotional rate is real, but it's temporary.

The Limits on How Much Banks Can Pay You

Banks can't pay unlimited interest because they have to make money on the spread between what they pay depositors and what they charge borrowers. If a bank pays 5% on savings but can only lend that money at 6%, the 1% spread has to cover the bank's operating costs, loan losses, and profit. Most banks need a spread of at least 2% to stay profitable.

This means deposit rates are capped by lending rates. When mortgage rates are 7%, banks can afford to pay more on savings. When mortgage rates are 4%, banks can't. The Fed's rate decisions ripple through the entire system — higher Fed rates mean higher lending rates, which means banks can afford to pay higher deposit rates.

During periods when the Fed keeps rates very low (as it did from 2009 to 2021), deposit rates stay near zero because lending rates are also low. During periods when the Fed raises rates aggressively (as it did in 2022 and 2023), deposit rates rise sharply. You can't control this, but you can time your moves — locking into a CD when rates are high, or moving to a high-yield savings account when rates are rising.

Frequently Asked Questions

Do I pay taxes on interest the bank pays me?

Yes. Interest income is taxable as ordinary income. Banks report interest paid to you on a 1099-INT form, which you receive by January 31 each year. You report this on your tax return. The amount is usually small — $10,000 at 4.5% generates $450 in taxable income — but it counts.

What if a bank fails — do I lose the money I deposited?

No. The FDIC (Federal Deposit Insurance Corporation) insures deposits up to $250,000 per account type per bank. If a bank fails, the FDIC pays you back. This is why moving money to a different bank for a higher rate is safe — your principal is protected either way.

Can I withdraw money from a CD early without a penalty?

Most CDs charge an early withdrawal penalty if you take money out before the term ends. The penalty is usually equal to a few months of interest. Some banks offer "no-penalty CDs" that let you withdraw anytime, but they pay lower rates in exchange. Read the terms before opening.

Why does my bank pay almost nothing on my savings account?

Large national banks like Chase, Bank of America, and Wells Fargo pay very low rates because they have captive customers and high operating costs. They don't need to compete on rate. Online banks and credit unions pay much higher rates because they compete entirely on price. Moving your money takes an hour and can earn you hundreds of dollars per year.

If rates fall, will my CD rate fall too?

No. CDs lock in your rate for the entire term. If you open a five-year CD at 5.0% and rates fall to 2.0% next year, you still earn 5.0%. This is why CDs are useful when rates are high — you lock in the rate before it falls. The trade-off is that if rates rise, you're stuck at the lower rate unless you pay an early withdrawal penalty.