What you'll earn depends on the bank and the rate they set
A regular savings account at most banks earns between 0.01% and 0.05% annual percentage yield (APY) right now. Some banks pay nothing at all. The rate your bank pays is not set by law or a central authority—each bank decides what to offer, and they change it whenever they want. A bank might advertise 0.04% one month and drop it to 0.02% the next.
The amount you actually earn is small. On $1,000 in a savings account earning 0.04% APY, you would earn about $0.40 per year. On $10,000, you would earn about $4 per year. The interest compounds daily at most banks, meaning you earn a tiny bit of interest on your interest, but the total is still modest.
The reason rates are so low is that banks are not competing hard for savings account deposits right now. When the Federal Reserve raises its benchmark interest rate, banks eventually raise savings rates too—but they do it slowly and unevenly. When the Fed cuts rates, banks drop savings rates much faster.
Key Takeaways
- Regular savings accounts at major banks currently earn 0.01% to 0.05% APY, with many paying less than 0.05%.
- The interest you earn on $1,000 at 0.04% APY is roughly $0.40 per year, before any account fees reduce it further.
- Banks set their own rates and change them without notice, so the rate you see today may not be the rate you earn next month.
- High-yield savings accounts at online banks and credit unions often pay 4% to 5% APY, which is 50 to 100 times more than a regular savings account.
- Interest compounds daily at most banks, but the effect is negligible at savings account rates.
Why regular savings accounts pay so little
Banks use deposits to make loans—mortgages, car loans, credit cards, business loans. The difference between what they pay you on deposits and what they charge borrowers is their profit margin. When banks have plenty of deposits, they do not need to pay much to attract more, so savings rates stay low. When deposits are scarce, rates go up.
Right now, deposits are plentiful at most large banks. People and businesses are holding cash. Banks do not need to compete for savings accounts, so they keep rates low. Meanwhile, high-yield savings accounts at online banks and credit unions are competing aggressively for deposits, which is why they pay 4% to 5% APY—rates that change based on what the Federal Reserve does.
Account fees also eat into what you earn. If your bank charges a monthly maintenance fee of $5 to $10, that fee will wipe out all the interest you earn in a year on a small balance. Some banks waive fees if you maintain a minimum balance or set up direct deposit, so check your account terms.
How to find out what your bank pays
Log into your online banking portal or call your bank's customer service line and ask for the current APY on your savings account. The rate should also appear on your monthly statement or in the account details section of your bank's website. Write down the exact rate and the date you checked it, because it may change.
If your bank does not clearly state the APY, that is a red flag. Banks are required by law to disclose the rate, but some bury it in fine print or on a separate page. If you cannot find it after five minutes of looking, call and ask directly.
Compare your rate to what other banks offer. The FDIC website does not publish a list of rates, but sites like Bankrate, DepositAccounts, and the Federal Reserve's own rate tracker show what different banks are paying. You do not need to stay with a bank that pays 0.01% if another bank pays 0.05%—moving money takes a few days and costs nothing.
The difference between a regular savings account and a high-yield savings account
A high-yield savings account is a savings account that pays a much higher rate. There is no legal definition of "high-yield"—it is just a marketing term. But in practice, high-yield accounts at online banks and credit unions pay 4% to 5% APY right now, while regular accounts at brick-and-mortar banks pay 0.01% to 0.05%.
The reason online banks pay more is that they have lower overhead costs. They do not operate physical branches, so they spend less on rent, staff, and equipment. They pass some of those savings to customers in the form of higher interest rates. Credit unions also tend to pay more because they are member-owned and return profits to members rather than to shareholders.
High-yield accounts have the same FDIC insurance protection as regular savings accounts—up to $250,000 per depositor per bank. The money is just as safe, and you can withdraw it just as easily. The only trade-off is that high-yield accounts are usually at banks you access only online, not in person.
How interest compounds and when you see it in your account
Interest compounds daily at most banks, meaning the bank calculates interest on your balance each day, adds it to your account, and then calculates the next day's interest on the new, slightly larger balance. Over a year, this compounds to a tiny bit more than if interest were calculated once a year. At savings account rates, the difference is negligible—on $1,000 at 0.04% APY, daily compounding earns you about $0.40 instead of $0.39.
You will see the interest posted to your account monthly or quarterly, depending on the bank. Some banks post it on the first day of the month; others post it on the last day. Check your statement to see when your bank posts interest. If you do not see interest posted for several months, contact the bank and ask why.
Interest is taxable income. At the end of the year, your bank will send you a 1099-INT form showing how much interest you earned. You report this on your tax return. At savings account rates, the amount is usually small enough that it does not affect your taxes much, but it still counts as income.
What happens to savings rates when the Federal Reserve changes rates
The Federal Reserve sets a benchmark interest rate called the federal funds rate. This is the rate banks charge each other for overnight loans. When the Fed raises this rate, banks eventually raise the rates they pay on savings accounts—but not immediately, and not by the same amount.
When the Fed cuts rates, banks drop savings rates much faster. This is because banks want to keep their profit margin wide. If the Fed raises rates, banks raise savings rates slowly so they can keep more of the difference. If the Fed cuts rates, banks cut savings rates quickly so they do not lose money.
The lag between a Fed rate change and a savings rate change can be weeks or months. If the Fed raises rates and your bank does not raise your savings rate within a month, that is normal. If it has been three months with no change, you might consider moving your money to a bank that is paying more.
Frequently Asked Questions
Can I earn more interest by keeping a larger balance?
No. The APY is the same regardless of your balance. A $100,000 balance earns the same rate as a $1,000 balance at the same bank. The larger balance simply earns more total dollars because the percentage is applied to a bigger number. However, some banks offer tiered rates where higher balances earn slightly higher APY, so check your account terms.
What if my bank pays 0% interest?
Some banks, especially very small ones or banks that cater to certain industries, pay no interest on savings accounts. If your bank pays 0%, you are not earning anything, and you should consider moving your money to a bank that pays at least 0.01% to 0.05%, or better yet, a high-yield account paying 4% to 5%.
Do I lose money if interest rates go down?
No. Interest rates going down means you will earn less interest going forward, but you do not lose the money you already have. If you earned $10 in interest last year and earn $5 this year because rates dropped, you still have all your original deposit plus the $15 in interest you earned.
Is a savings account worth using if the interest is so low?
A savings account is worth using for emergency money and short-term savings because it keeps your money safe and accessible. The interest is a bonus, not the main reason to use it. If you have money you will not need for several years, a high-yield savings account or a certificate of deposit (CD) will earn you more.
How do I move my money to a bank that pays more?
Open a new account at the bank that pays the higher rate, then transfer your money from your old account to the new one. Most banks can do this electronically using your old account number and routing number. The transfer usually takes three to five business days. You can close your old account once the money arrives.