Savings account interest rates vary by bank and change weekly, so there is no single answer
The interest rate on your savings account depends entirely on which bank you use. A large national bank might offer 0.01% annual percentage yield (APY), while an online bank might offer 4.50% or higher on the same amount of money. The difference between these two accounts is real: on $10,000, one bank pays you $1 per year while another pays $450 per year.
Banks set their own rates based on what the Federal Reserve does with its benchmark rate, but they do not have to match it. A bank with high operating costs or one that does not need new deposits will offer lower rates. A bank competing for customers or one with low overhead will offer higher rates. Your rate can also change at any time—banks are not required to give you advance notice before lowering it.
The rate you see advertised is not may provide to be the rate you get. Some banks offer promotional rates for new customers only, rates that drop after a certain number of months, or rates that apply only to balances above a minimum amount. Read the terms before you open the account.
Key Takeaways
- Online banks typically offer higher APY than brick-and-mortar banks because they have lower operating costs and pass savings to customers.
- The rate your bank advertises can change at any time, and banks do not have to notify you before lowering it.
- Promotional rates often expire after three to twelve months, so confirm how long the advertised rate will last.
- The same $10,000 can earn $1 per year at one bank and $450 per year at another, so shopping around matters.
- Your rate does not depend on how much money you deposit—a bank's rate is the same whether you have $100 or $100,000 in the account.
How banks decide what rate to offer
Banks borrow money from the Federal Reserve at a rate called the federal funds rate. When that rate is high, banks pay more to borrow, so they offer higher rates on savings accounts to attract deposits. When the federal funds rate is low, banks pay less to borrow, so they lower the rates they offer to savers.
But banks do not pass along the full change. If the Federal Reserve raises its rate by 0.50%, your bank might raise your savings rate by only 0.25% or not at all. Banks keep the difference as profit. Similarly, when the Federal Reserve cuts rates, banks often cut savings rates faster and deeper than they cut borrowing rates.
A bank's own costs also matter. An online bank with no physical branches and no tellers has lower expenses than a bank with hundreds of locations. That bank can afford to pay you more. A bank that is struggling to attract deposits will raise its rate to compete. A bank that already has plenty of deposits may lower its rate because it does not need your money.
Where to find current rates and compare them
Banks publish their rates on their websites, but you have to look for them—they are not always on the homepage. Search for "savings account rate" or "APY" on the bank's site, or call and ask. Do not assume the rate you see in an advertisement is the rate you will get; read the fine print for any restrictions.
Comparison sites like Bankrate, DepositAccounts, and the FDIC's BankFind tool let you see rates from many banks at once. These sites update frequently, but not in real time, so call the bank directly to confirm the rate before you open an account. Rates change weekly or even daily when the Federal Reserve moves.
When you compare, look at the APY, not just the interest rate. APY accounts for how often the bank compounds interest (adds earned interest back to your balance so you earn interest on that interest). A bank advertising a higher rate but compounding less frequently might actually pay you less than a bank with a lower rate and daily compounding.
Promotional rates and when they expire
Many banks offer a higher rate for new customers or for a limited time. A bank might advertise 4.75% APY for the first three months, then drop it to 0.50% after that. These promotions are real—you do get the higher rate—but only for the period stated. After the promotion ends, your rate falls unless you move your money to another bank.
Read the promotion terms before you open the account. The bank should tell you exactly when the promotional rate ends and what your rate will be after that. If the terms are not clear on the website, call and ask. Some banks require you to maintain a minimum balance or make regular deposits to keep the promotional rate; others do not.
If you want to keep earning a high rate after a promotion ends, you will need to move your money. Some people open a new account at a different bank every few months to chase promotional rates. This works, but it requires tracking multiple accounts and moving money around. For most people, finding a bank with a competitive standard rate (not promotional) is simpler.
Why your rate might change after you open the account
Banks can lower your savings rate at any time without your permission. They do not have to give you advance notice, though some do. If your bank lowers the rate, you have the right to close the account and move your money elsewhere, but you do not have the right to keep the old rate.
Rates fall most often when the Federal Reserve cuts its benchmark rate. Banks respond by lowering what they pay savers. Rates can also fall when a bank's strategy changes—for example, if it merges with another bank or decides it has enough deposits and does not need to attract more.
If you want to lock in a rate, a certificate of deposit (CD) is a different product that guarantees a fixed rate for a set period (usually three months to five years). With a savings account, the rate is variable and can change anytime.
How much interest you actually earn
The amount you earn depends on three things: the APY, how much money you have in the account, and how long you leave it there. A $5,000 balance earning 4.50% APY for one year earns about $225 in interest. The same $5,000 at 0.01% APY earns about 50 cents.
Interest compounds, usually daily or monthly. That means the bank adds your earned interest to your balance, and then you earn interest on that interest the next period. Daily compounding pays slightly more than monthly compounding, but the difference is small on most balances.
If you withdraw money before the end of the year, you earn interest only on the amount you had on deposit for the time you had it there. If you deposit $5,000 on January 1 and withdraw $2,000 on July 1, you earn interest on $5,000 for six months and $3,000 for six months.
What happens if you move your money to a different bank
You can move your savings to another bank anytime without penalty. Unlike CDs, savings accounts have no early withdrawal fee or rate lock. You simply open a new account at the new bank and transfer your money. The transfer usually takes one to three business days.
When you move your money, your old bank stops paying you interest on that balance. Your new bank starts paying interest on the day the money arrives in your account. There is no gap in interest, but there is also no overlap—you do not earn interest at both banks on the same money.
If you are moving because your current bank lowered its rate, check the new bank's terms carefully. Make sure the rate you are moving to is not also a promotional rate that will expire soon. Some people move their money multiple times chasing rates; others find a bank with a consistently competitive rate and stay put.
Frequently Asked Questions
Is the advertised rate may provide, or can the bank change it?
The bank can change your rate at any time after you open the account. Promotional rates are may provide only for the period stated. Standard rates are variable and can go up or down. If you want a may provide rate, you need a CD, not a savings account.
Why do online banks pay more interest than big banks?
Online banks have lower overhead costs because they do not operate physical branches or employ tellers. They pass those savings to customers by offering higher rates. Big banks with many locations have higher costs and often pay lower rates, though some do offer competitive rates to attract online customers.
Does the amount of money I deposit affect the interest rate?
No. A bank's advertised APY is the same whether you deposit $100 or $100,000. Some banks offer higher rates on money market accounts or savings accounts with very large minimum balances, but standard savings accounts pay the same rate regardless of balance size.
What is the difference between APY and interest rate?
The interest rate is the percentage the bank pays per year. APY (annual percentage yield) includes the effect of compounding—how often the bank adds earned interest back to your balance. APY is always equal to or higher than the interest rate, so compare banks using APY, not the interest rate alone.
Can I earn interest if I keep my money in a regular checking account?
Most checking accounts pay little to no interest. Some banks offer interest-bearing checking accounts, but the rates are usually much lower than savings accounts. If you want to earn interest, move money you are not spending to a savings account or money market account.