A good savings rate depends on what the Federal Reserve is doing and what banks are currently offering

There is no single "good" rate that applies everywhere or stays the same year to year. A good rate is one that beats what most banks are paying right now, and that number changes when the Federal Reserve raises or lowers its benchmark interest rate. When the Fed raises rates, banks raise what they pay on savings. When the Fed cuts rates, banks cut what they pay. Right now, the best savings accounts pay between 4% and 5.35% annual percentage yield (APY), depending on the bank and account type. Six months ago, those same accounts paid less. Six months from now, they may pay more or less.

The practical definition: a good rate is one that is higher than the national average for your account type. The national average for a regular savings account is typically around 0.4% to 0.5% APY. High-yield savings accounts (HYSAs) and money market accounts pay much more—usually 4% or higher. If your bank is paying you 0.01% on a savings account while HYSAs pay 4.5%, your bank is not giving you a good rate, even if that 0.01% was considered normal five years ago.

Key Takeaways

  • Good savings rates change when the Federal Reserve changes its benchmark rate, so what was good six months ago may not be good now.
  • High-yield savings accounts and money market accounts currently pay 4% to 5.35% APY, while traditional bank savings accounts pay closer to 0.4% to 0.5%.
  • Online banks and credit unions often pay higher rates than brick-and-mortar banks because they have lower overhead costs.
  • The rate you see advertised is only good if your money stays in the account for the full year—moving money out early may trigger fees that erase the interest you earned.

How to compare rates across different banks

Start by looking at what your current bank is paying. Log into your savings account online or call the bank and ask for the APY on your account. Write it down. Then visit the websites of at least three other banks—online banks like Marcus, Ally, or Discover, or credit unions in your area—and note their advertised APY for a savings account or money market account.

The APY is the number that matters, not the interest rate. APY includes how often the bank compounds interest (adds earned interest back into your account), so two banks with different compounding schedules but the same APY will give you the same amount of money after one year. When you compare, make sure you are looking at the same account type: a high-yield savings account at one bank against a high-yield savings account at another, not a regular savings account against a money market account.

Check whether there is a minimum balance requirement and what happens if you fall below it. Some banks pay the advertised rate only if you keep a certain amount in the account—$500, $1,000, or more. If your balance drops below that, the rate may fall to something much lower. Read the fine print on the bank's website or call and ask directly.

Why online banks and credit unions often pay more

Online banks have no physical branches, so they spend less money on buildings, staff, and overhead. They pass some of that savings to customers by paying higher interest rates on deposits. A bank like Ally or Marcus can afford to pay 4.5% APY because they do not have to maintain thousands of branches across the country. A traditional bank with hundreds of locations has higher costs and pays less.

Credit unions operate as member-owned cooperatives rather than for-profit companies. They are required to return profits to members, often in the form of higher interest rates on savings and lower fees on loans. If you belong to a credit union, check what they are paying on savings accounts—many credit unions pay rates competitive with online banks.

The tradeoff is convenience. An online bank has no teller, no drive-through, and no local branch where you can walk in with a check. You deposit money by mail or mobile app. If you need cash, you withdraw from an ATM (some online banks reimburse ATM fees; others do not). For most people, this is not a problem. For someone who deposits cash frequently or needs immediate access to a teller, a traditional bank may be worth the lower rate.

What happens to your rate when the Federal Reserve moves

The Federal Reserve does not set the interest rate your bank pays you. It sets the federal funds rate, which is the rate banks charge each other to borrow money overnight. When the Fed raises this rate, banks have to pay more to borrow, so they raise what they pay on deposits to attract customers. When the Fed cuts the rate, banks cut what they pay on deposits because they can borrow more cheaply.

The lag between a Fed move and a change in your rate is usually one to three weeks. If the Fed raises rates on a Wednesday, your bank may not update its savings rate until the following Monday or later. Some banks move faster than others. Online banks tend to move quickly because they can change rates with a website update. Traditional banks may take longer because they have to update systems across many branches.

Your rate is not locked in. Banks can lower your rate at any time, and they often do when the Fed cuts rates. If you want to protect yourself, move your money to a bank offering a higher rate before the Fed cuts. Once the Fed starts cutting, rates across the industry will fall within weeks, and you will be stuck with whatever your bank is paying.

Certificates of deposit (CDs) lock in a rate for a set time

A certificate of deposit is different from a savings account. You give the bank a lump sum of money and agree to leave it there for a set period—three months, six months, one year, two years, or longer. In exchange, the bank locks in an interest rate for that entire period. If you withdraw the money early, you pay a penalty (usually a few months of interest).

CDs currently pay between 4.5% and 5.5% APY, depending on the term length. Shorter CDs (three to six months) often pay less than longer CDs (two to five years). The advantage is certainty: you know exactly what you will earn, and the rate will not change. The disadvantage is that your money is locked up. If you need the cash before the CD matures, you lose some of the interest you earned.

CDs make sense if you have money you will not need for a specific amount of time and you want to lock in today's rate before the Fed cuts. They do not make sense if you might need the money sooner or if you want to keep your options open.

The difference between APY and interest rate

The interest rate is the percentage the bank pays on your money per year, before compounding. The APY is the actual amount you earn after the bank compounds interest. Compounding means the bank adds the interest you earned back into your account, and then pays interest on that interest.

For example, if a bank advertises a 5% interest rate and compounds daily, your actual earnings (the APY) will be slightly higher than 5%—maybe 5.13%. The difference is small, but it adds up over time. Always compare APY to APY, not interest rate to APY. Banks are required to show you the APY prominently on their website and in account disclosures, so you should not have to calculate it yourself.

When a high rate is not worth it

A high interest rate only matters if you actually earn the interest. Read the account terms before you open an account. Some banks charge monthly fees that eat into your earnings. If a bank pays 4.5% APY but charges a $10 monthly fee, you are losing $120 a year—money that could have come from interest. On a $5,000 balance earning 4.5%, you would make about $225 in interest, but the $120 in fees cuts that down to $105.

Also check the minimum balance requirement. If you have to keep $10,000 in the account to earn the advertised rate, but you only have $2,000, the rate does not apply to you. Some banks will pay a lower rate on balances below the minimum. Make sure the rate you see is the rate you will actually get.

Finally, consider how long you plan to keep the money in the account. If you are saving for a house down payment and you will need the money in six months, a high-yield savings account makes sense because you can withdraw anytime without penalty. If you are saving for retirement and will not touch the money for five years, a five-year CD might lock in a better rate—but only if you are certain you will not need the money before the CD matures.

Frequently Asked Questions

Is 4% a good savings rate right now?

Yes. A 4% APY on a savings account or money market account is above the national average and competitive with most online banks. Rates vary by bank and change frequently, so check current offerings to see if you can find higher. Anything below 1% is significantly below market.

Will savings rates go up or down next?

That depends on what the Federal Reserve does, and the Fed does not announce rate changes far in advance. You can read Fed announcements and economic forecasts, but no one can predict with certainty. If you are worried about rates falling, lock in a CD now. If you think rates will rise, keep your money in a high-yield savings account where you can move it if a better rate appears.

Should I move my money to get a better rate?

If your current bank pays significantly less than 1% and online banks pay 4% or more, moving makes sense. The process takes a few days, and you will earn more interest in the new account within weeks. If the difference is small (your bank pays 3.5% and another pays 4%), the move is less urgent, but you can still benefit over time.

Do I lose money if I withdraw from a savings account early?

No, not from a regular savings account. You can withdraw anytime without penalty. However, some banks charge a fee if you make more than a certain number of withdrawals per month (usually six). Check your account terms. CDs are different—withdrawing early triggers a penalty, usually a few months of interest.

Is my money safe in an online bank?

Yes, as long as the bank is FDIC-insured. The FDIC (Federal Deposit Insurance Corporation) protects deposits up to $250,000 per account holder per bank, whether the bank is online or has physical branches. Check the bank's website for the FDIC logo or call and ask. If a bank is not FDIC-insured, do not put your money there.