A good savings rate depends on what the Federal Reserve is doing and what your bank is offering

There is no single "good" interest rate that works for everyone, because rates change with the Federal Reserve's decisions and vary wildly between banks. A rate that was competitive six months ago may be below average today. What matters is comparing what your bank is paying against what other banks are paying right now, and understanding that rates on savings accounts, money market accounts, and certificates of deposit (CDs) all move differently.

The Federal Reserve sets a target range for the federal funds rate, which is the interest rate banks charge each other for overnight loans. When the Fed raises or lowers this rate, banks eventually adjust what they pay depositors on savings accounts—though they do not always move at the same speed or by the same amount. Some banks raise savings rates quickly when the Fed moves; others lag behind. Some banks cut rates slowly when the Fed cuts; others drop them immediately.

Right now, you can find savings accounts paying between 4% and 5.35% APY, depending on the bank and account type. Money market accounts often pay slightly more. CDs locked in for one year or longer may pay 4.5% to 5.5% or higher. But these numbers shift as the Fed's policy changes, so a rate that is good today may not be good in three months.

Key Takeaways

  • Compare your current bank's rate against at least three online banks and your local credit union to see whether you are falling behind.
  • Online banks and credit unions typically pay 0.5% to 1.5% more APY than large national banks on the same account type.
  • Money market accounts and CDs often pay more than regular savings accounts, but money market accounts let you withdraw funds while CDs lock your money for a set term.
  • The Federal Reserve's interest rate decisions affect what banks pay, but banks do not always pass increases to depositors quickly or completely.

How to tell if your bank is paying you fairly

The simplest way to know if your rate is good is to check what other banks are offering for the same account type. If you have a regular savings account paying 0.01% APY at a big national bank, you are earning almost nothing. The same account at an online bank might pay 4.5% APY. That difference compounds: on $10,000, you would earn $1 per year at 0.01% and $450 per year at 4.5%.

Start by checking rates at three to five banks you do not currently use. Online banks like Marcus, Ally, and American Express Personal Savings typically publish their rates on their websites without requiring you to log in. Credit unions often pay competitive rates too, especially if you are a member. Write down the APY for the account type you want—savings, money market, or CD—and compare the numbers side by side.

Pay attention to the account type, not just the bank name. A money market account at Bank A might pay 5.2% while their regular savings account pays 4.8%. A CD at Bank B might pay 5.35% for 12 months but only 4.9% for 6 months. The rate depends on what you are willing to commit to and how you plan to use the money.

Why online banks and credit unions usually pay more

Online banks have lower overhead costs than brick-and-mortar banks. They do not maintain physical branches, pay as many employees, or spend money on real estate. Because their costs are lower, they can afford to pass more of their earnings to depositors in the form of higher interest rates. This is not charity—it is competition. Online banks use higher rates to attract customers who might otherwise stay with their current bank.

Credit unions operate on a not-for-profit model, which means they return earnings to members rather than shareholders. Many credit unions pay rates that match or beat online banks, especially if you meet their membership requirements. Some credit unions have low or no minimum balance requirements, while others require you to live or work in a specific area or belong to a particular employer or organization.

Large national banks—Chase, Bank of America, Wells Fargo, Citibank—typically pay the lowest rates on savings accounts. Their rates often lag behind the Fed's moves by weeks or months, and they do not raise rates as high as competitors even when the Fed is raising. This is because they have a large customer base that does not shop around, so they have less pressure to compete on rate.

The difference between savings accounts, money market accounts, and CDs

A savings account lets you deposit and withdraw money whenever you want, with no penalty. The interest rate is variable, meaning the bank can change it at any time. Most savings accounts have a low minimum balance or none at all. Rates on savings accounts typically range from 4% to 5.35% APY right now, depending on the bank.

A money market account is a hybrid between a savings account and a CD. It usually pays a higher interest rate than a savings account, but it may require a higher minimum balance (sometimes $2,500 or more). You can withdraw money, but the account may limit how many withdrawals you can make per month. Money market rates are variable and typically range from 4.5% to 5.5% APY.

A certificate of deposit (CD) is a time commitment. You agree to leave your money in the account for a set period—3 months, 6 months, 1 year, 5 years—and in return the bank pays you a fixed interest rate that does not change. If you withdraw the money before the term ends, you pay an early withdrawal penalty, which is usually a few months of interest. CD rates are typically higher than savings account rates because the bank knows it can use your money for a may provide period. Right now, 1-year CDs pay between 4.5% and 5.5% APY depending on the bank.

What happens to your rate when the Federal Reserve changes policy

The Federal Reserve meets eight times per year to decide whether to raise, lower, or hold its target interest rate. When the Fed raises rates, banks eventually raise what they pay depositors—but the timing and amount vary. Some online banks raise savings rates within days of a Fed increase. Large national banks may wait weeks or months, or raise rates by less than the Fed's move.

When the Fed cuts rates, the pattern reverses. Online banks often cut savings rates quickly, sometimes within days. Large national banks may cut more slowly, but they do cut. CD rates are different: when you lock in a CD rate, that rate is fixed for the entire term, so Fed changes do not affect CDs you already own. But new CDs issued after a Fed cut will pay less.

This is why it makes sense to check rates regularly if you are shopping for a new account or a CD. A rate that was the best available last month may not be the best available this month. If you are happy with your current bank but the Fed has just cut rates, your savings account rate will probably fall within the next few weeks—and that is a good time to shop around and see if another bank is paying more.

How to lock in a good rate with a CD

If you have money you will not need for a specific period—say, 12 months or 2 years—a CD can lock in a rate that will not change, even if the Fed cuts rates and savings account rates fall. This is valuable if you think rates are about to drop. To lock in a good CD rate, you need to decide how long you can commit the money and then compare CD rates across banks for that term.

A 1-year CD might pay 5.2% at one bank and 4.8% at another. A 2-year CD might pay 4.9% at the first bank and 5.1% at the second. The rates are different because banks have different views on where interest rates are headed. Shop around for the term you want, and remember that the early withdrawal penalty varies by bank—some charge three months of interest, others charge six months or a flat fee.

One strategy is to use a CD ladder: buy multiple CDs with different maturity dates, so money becomes available at different times. For example, you could buy a 1-year CD, a 2-year CD, and a 3-year CD with the same amount of money. When the 1-year CD matures, you can decide whether to renew it or move the money elsewhere. This gives you flexibility while still locking in rates on most of your money.

Red flags that your bank is not paying a competitive rate

If your savings account is paying less than 1% APY, your bank is not competitive. This is especially true if the Federal Reserve's target rate is above 4%. Large national banks sometimes pay rates below 0.5% on regular savings accounts, which means you are losing money to inflation. Move your money.

If your bank has not raised your savings rate in the last six months but the Fed has raised rates during that time, your bank is lagging. Check what online banks are paying for the same account type. If the difference is more than 0.5%, it is worth switching.

If your bank is offering a promotional rate that expires after a few months, read the fine print. Some banks offer 5% APY for the first three months, then drop to 0.5% after that. The promotional rate is designed to attract new customers, not to reward loyal ones. If you are considering switching for a promotional rate, make sure the bank's regular rate (after the promotion ends) is still competitive.

Frequently Asked Questions

Is 4% a good savings rate?

Yes, 4% is competitive right now for a regular savings account. Money market accounts and CDs often pay more—4.5% to 5.5%—but 4% is solid for a savings account that lets you withdraw money anytime. If your bank is paying less than 3%, you should shop around.

Should I move my money to get a higher rate?

If your current bank is paying more than 1% less than what online banks are offering for the same account type, moving makes sense. The process usually takes 3 to 5 business days. You do not lose money by switching, and the higher rate will add up over time, especially if you have a large balance.

What if rates drop after I open a CD?

You are protected. Your CD rate is fixed for the entire term, so if rates fall, you keep earning the higher rate you locked in. This is one reason CDs are useful when rates are high—you lock in the good rate before it disappears.

Do I need a minimum balance to get a good rate?

Most online banks offer their best rates with no minimum balance or a low minimum like $25. Some money market accounts require $2,500 or more. Check the bank's website to see what minimum applies to the account type you want.

How often do banks change savings rates?

Banks can change savings rates at any time without notice. Online banks often adjust rates weekly or monthly. Large national banks may change rates less frequently. CD rates are fixed for the term, so they do not change once you open the account.