Current savings account rates vary by bank and account type, but most traditional banks pay between 0.01% and 0.50% APY, while online banks and money market accounts often pay 4% to 5.35% APY
The rate you earn depends almost entirely on where you keep your money. A savings account at a large national bank like Chase or Bank of America typically pays less than 0.10% APY. The same dollar in an online bank like Marcus, Ally, or Discover might earn 4.50% APY or higher. The difference is real: on $10,000, that gap means earning $1 per year at a traditional bank versus $450 per year at an online bank.
Rates change constantly and are set by each bank independently. The Federal Reserve does not set savings rates—it sets the federal funds rate, which is the rate banks charge each other for overnight loans. Banks use that as a reference point, but they decide how much of that rate to pass on to you. When the Fed raises rates, online banks tend to raise savings rates quickly. When the Fed cuts rates, online banks usually cut them faster than traditional banks do.
Key Takeaways
- Online banks and online-only divisions of traditional banks pay the highest rates, typically 4% to 5.35% APY, because they have lower overhead costs than branches.
- Traditional brick-and-branch banks pay the lowest rates, often under 0.10% APY, even when the Fed funds rate is much higher.
- Money market accounts at online banks can pay rates similar to high-yield savings accounts, but require higher minimum balances and limit withdrawals.
- Rates change weekly or monthly, so the rate you see today may be lower next month—check your bank's website or call to confirm the current rate before moving money.
- The difference between a 0.05% rate and a 4.50% rate on $50,000 is about $2,225 per year in lost earnings.
Why online banks pay more than branch banks
Online banks have no physical locations, no tellers, and no branch staff. They save millions on rent, salaries, and operations. Those savings get passed to customers as higher interest rates. Marcus, Ally, Discover, and American Express Personal Savings are all online-only or online-first operations. They compete for deposits by offering the highest rates they can afford.
Traditional banks like Wells Fargo, Bank of America, and Chase operate thousands of branches. They pay for buildings, employees, and ATM networks. They also make money from overdraft fees, loan origination, and investment services—so they do not need to pay high savings rates to attract deposits. Many customers keep money in these banks for convenience or because they already have a checking account there, even though the savings rate is poor.
Some traditional banks have created online divisions to compete. Citi has Citi Savings, Bank of America has a higher-yield savings product, and Wells Fargo offers a higher rate on certain accounts. These rates are still lower than pure online banks, but higher than the bank's standard savings account.
How to compare rates across different account types
Savings accounts, money market accounts, and certificates of deposit (CDs) all earn interest, but at different rates and with different rules. A high-yield savings account at an online bank typically pays 4% to 5.35% APY with no withdrawal limits and no minimum balance (or a very low one, like $0.01). A money market account pays a similar rate but often requires $2,500 to $10,000 to open and limits you to six withdrawals per month. A CD locks your money for a set term—three months, one year, five years—and pays a fixed rate that does not change, but you pay a penalty if you withdraw early.
For short-term savings or an emergency fund, a high-yield savings account is usually the best choice because you can access your money anytime without penalty. For money you will not need for a specific period, a CD might pay slightly more. For very large balances, a money market account might offer a marginally higher rate, but the withdrawal limits make it less practical for most people.
| Account Type | Typical Rate Range | Minimum Balance | Withdrawal Limits |
|---|---|---|---|
| Traditional bank savings | 0.01% to 0.10% | $0 to $500 | None |
| Online high-yield savings | 4.00% to 5.35% | $0 to $25 | None |
| Money market account | 4.00% to 5.25% | $2,500 to $10,000 | Six per month (federal limit) |
| 3-month CD | 4.50% to 5.40% | $500 to $2,500 | None (but early withdrawal penalty applies) |
| 1-year CD | 4.50% to 5.50% | $500 to $2,500 | None (but early withdrawal penalty applies) |
What happens to savings rates when the Fed changes interest rates
The Federal Reserve meets eight times per year to set the federal funds rate, which is the interest rate banks charge each other for overnight loans. When the Fed raises this rate, banks have more incentive to raise savings rates because they can earn more from lending. When the Fed cuts the rate, banks cut savings rates because they earn less from lending and need to reduce what they pay depositors.
Online banks move faster than traditional banks. When the Fed raised rates from 2022 to 2023, online banks increased their savings rates within days. Traditional banks waited weeks or months. When the Fed paused rate increases in 2023, online banks held their rates steady longer than traditional banks, which began cutting. This lag means timing matters: if you move money to an online bank right after the Fed raises rates, you may catch a higher rate before it drops again.
Rates are not may provide. A bank can lower your rate at any time with notice (usually 30 days). Some banks have cut rates multiple times in a single year. Check your bank's website or call to confirm the current rate before opening an account, and monitor your rate periodically to see if it has changed.
How much you actually earn depends on your balance and how long you keep it there
Interest accrues daily but is usually credited monthly. If you have $10,000 in a savings account earning 4.50% APY, you earn about $450 per year, or $37.50 per month, or $1.23 per day. If you have $100,000, you earn $4,500 per year. If you have $1,000, you earn $45 per year.
The longer you keep money in the account, the more you earn. If you deposit $10,000 on January 1 and leave it there for the full year at 4.50% APY, you earn $450. If you deposit $10,000 on July 1, you earn about $225 (half a year). If you deposit $10,000 on December 1, you earn about $37.50 (one month).
Some banks compound interest daily, which means they add earned interest to your balance and then calculate interest on that new balance. This compounds your earnings slightly over time, but the effect is small on savings accounts. A $10,000 balance earning 4.50% APY with daily compounding earns about $1.50 more per year than simple interest would.
FDIC insurance protects your money up to $250,000 per bank
The Federal Deposit Insurance Corporation (FDIC) insures deposits at member banks up to $250,000 per depositor, per bank, per account type. This means if you have $100,000 in a savings account at an online bank and that bank fails, the FDIC will return your $100,000. If you have $300,000, the FDIC covers $250,000 and you lose $50,000.
The $250,000 limit applies per bank, not per account. If you have $100,000 in savings and $100,000 in a money market account at the same bank, the FDIC covers both as long as the total is under $250,000. If you have $200,000 at one bank and $200,000 at another bank, both are fully covered because they are at different banks.
All the online banks mentioned in this article—Marcus, Ally, Discover, American Express Personal Savings—are FDIC-insured. If you have more than $250,000 to save, split it across multiple banks to keep all of it insured.
Frequently Asked Questions
Is 4.50% APY may provide to stay that high?
No. Banks can lower rates at any time with notice, usually 30 days. Rates are highest when the Fed funds rate is high. If the Fed cuts rates, savings rates will fall. Check your bank's website monthly to see if your rate has changed, and be prepared to move your money if a better rate becomes available elsewhere.
Do I have to pay taxes on savings account interest?
Yes. Interest earned on a savings account is taxable income. Your bank will send you a Form 1099-INT at the end of the year if you earned $10 or more in interest. You report this on your tax return. The higher your rate, the more tax you owe on the earnings.
Can I move money between banks without losing interest?
Yes. When you transfer money from one bank to another, the money stops earning interest at the old bank and starts earning interest at the new bank on the day it arrives. You do not lose interest for the transfer itself, but you do lose interest for any days the money is in transit (usually one to three business days). Moving money is free and does not affect your credit.
What is the difference between APY and APR on a savings account?
APY (annual percentage yield) includes the effect of compounding interest over a year. APR (annual percentage rate) does not. Banks must disclose APY for savings accounts, so that is the number you should use to compare rates. APR is used for loans and credit cards, not savings.
Should I put all my money in a high-yield savings account?
High-yield savings accounts are good for emergency funds and money you need within a year or two. For money you will not need for five or more years, a CD or other longer-term investment may earn more. For money you need to invest for growth, stocks or bonds may be appropriate, but those carry risk that savings accounts do not. Talk to a financial advisor about your specific situation.