A good APY on a savings account depends on the type of account and where you bank, but right now most online banks pay between 4.5% and 5.35%, while traditional brick-and-mortar banks typically pay under 0.5%.
The gap exists because online banks have lower overhead costs and compete aggressively for deposits. A traditional bank might offer 0.01% APY on a regular savings account; an online bank in the same month might offer 5.00% on the same type of account. The difference compounds fast: on $10,000, that's $1 per year versus $500 per year.
What counts as "good" also shifts with the Federal Reserve's interest rate decisions. When the Fed raises its benchmark rate, banks raise what they pay on savings. When the Fed cuts rates, banks cut what they pay—sometimes within days. So an APY that was competitive three months ago may no longer be.
The real comparison is not "is 5% good in absolute terms" but "is this rate competitive with what other banks are offering today for the same account type." You can check current rates on sites that track them in real time, though those sites do not process applications themselves.
Key Takeaways
- Online banks currently pay roughly 10 times more APY than traditional banks on regular savings accounts, with rates typically between 4.5% and 5.35%.
- APY rates change frequently and follow Federal Reserve decisions, so a rate that was competitive last month may not be now.
- High-yield savings accounts, money market accounts, and certificates of deposit (CDs) each have different APY ranges, and the best choice depends on when you need the money.
- The bank's size and business model matter more than its reputation: smaller online banks and credit unions often pay more than large national chains.
- Moving money to a higher-paying account takes one to three business days, so switching banks is practical even for existing savings.
How APY rates differ by account type
High-yield savings accounts are the most common comparison point. These are regular savings accounts with no withdrawal limits, no lock-in period, and FDIC insurance up to $250,000. Current rates on these accounts range from about 4.5% to 5.35% at online banks. You can withdraw money whenever you want without penalty.
Money market accounts work similarly but sometimes include a debit card or check-writing privileges. They often pay slightly more than high-yield savings accounts—sometimes 5.25% to 5.50%—but may require a higher opening deposit and sometimes limit the number of withdrawals per month. The FDIC insurance limit is still $250,000.
Certificates of deposit (CDs) lock your money away for a set period—typically three months to five years—in exchange for a higher rate. A one-year CD might pay 5.00% to 5.50%, while a five-year CD might pay 4.75% to 5.25%. You cannot withdraw the money early without paying a penalty, which is why the rate is higher. The penalty amount varies by bank and term length.
Regular savings accounts at traditional banks typically pay 0.01% to 0.05% APY. These are the accounts most people have at Chase, Bank of America, or Wells Fargo. The rate is so low because the bank is betting you will not shop around.
Why online banks pay more than traditional banks
Online banks have no physical branches, no tellers, and no real estate costs. They pass those savings to customers through higher APY rates. They also compete directly on rate—if one online bank raises its APY to 5.25%, others often follow within days to stay competitive.
Traditional banks do not compete on rate the same way. They rely on convenience (a branch near your home), habit (you have had an account there for years), and the fact that most people do not check what they are earning. A customer earning 0.01% APY at a big bank is unlikely to move $50,000 to an online bank for an extra $500 per year if they have never done online banking before.
Credit unions sometimes pay rates between traditional banks and online banks. They are member-owned, not shareholder-owned, so they can return earnings to members through higher rates. However, you must be a member to open an account, which usually means living or working in a specific area or belonging to a specific employer or organization.
How to compare rates across banks
The most reliable way to compare is to check the current rates directly on each bank's website. Look for the APY, the annual percentage yield—not the interest rate, which is different. The APY is what you actually earn because it accounts for compounding.
Some banks advertise a promotional rate for new customers only. Read the fine print: the rate might drop to 4.50% after three months, or it might apply only to deposits made in the first 30 days. A rate that looks great for three months and then drops is not as good as a slightly lower rate that stays the same.
Check whether the bank is FDIC-insured. This means your deposits up to $250,000 are protected if the bank fails. Most online banks are FDIC-insured, but a few are not. If a bank is not FDIC-insured, no APY rate is worth the risk.
Also check the minimum opening deposit. Some online banks require $0 to open; others require $500 or $1,000. If you have $5,000 to save, a bank that requires $1,000 minimum is fine. If you have $200, you need a bank with no minimum.
What happens to your APY when interest rates change
When the Federal Reserve raises its benchmark interest rate, banks typically raise the APY they pay on savings within days or weeks. When the Fed cuts rates, banks cut what they pay—sometimes immediately. Your APY is not locked in; it can change at any time, and banks are not required to give you advance notice.
If you lock money into a CD, the rate is fixed for the entire term. A five-year CD at 5.00% will pay 5.00% for all five years, even if rates drop to 2.00% next year. This is why CDs are useful when you think rates might fall—you lock in today's rate. But if rates rise, you are stuck with the lower rate unless you withdraw early and pay the penalty.
High-yield savings accounts and money market accounts have variable rates, meaning they can change. If you open a high-yield savings account at 5.25% today, the bank can lower it to 4.75% next month if the Fed cuts rates. You can move your money to a different bank if the rate drops too much, but you will not earn interest during the transfer (usually one to three business days).
When to use each account type
Use a high-yield savings account if you need the money within the next year or two and want the flexibility to withdraw it anytime. The rate is high enough to beat inflation, and you do not give up access.
Use a CD if you know you will not need the money for a specific period—say, two years—and you want to lock in today's rate. CDs are useful for money you are saving for a specific goal (a down payment, a car, a home repair) with a known timeline.
Use a money market account if you want slightly higher APY than a high-yield savings account and do not mind a higher opening deposit or occasional withdrawal limits. Some money market accounts include a debit card, which makes them more flexible than CDs.
Avoid regular savings accounts at traditional banks unless you need a physical branch for deposits or withdrawals. The APY is so low that you are essentially losing money to inflation.
How to move money to a higher-paying account
Opening an account at an online bank takes 10 to 15 minutes and requires a Social Security number, proof of address, and a valid ID. You can do it entirely on your phone or computer.
Transferring money from your old bank to the new bank takes one to three business days. You can initiate an external transfer from the new bank's website (you will need your old bank's routing number and your account number), or you can withdraw cash and deposit it, though that is slower and riskier.
You do not have to close your old account. Many people keep a small balance at their traditional bank for emergencies or for deposits at ATMs, and move most of their savings to a higher-paying online bank. There is no penalty for having accounts at multiple banks.
Frequently Asked Questions
Is 5% APY may provide to stay at 5%?
No. Banks can lower the APY on high-yield savings accounts and money market accounts at any time without notice. The rate you see today may be lower next month. CDs are different—the rate is locked in for the entire term, so a five-year CD at 5% will pay 5% for all five years.
What if I need the money before the CD matures?
You can withdraw it, but you will pay an early withdrawal penalty. The penalty is usually three to six months of interest. So if you withdraw from a five-year CD after one year, you might lose six months of interest earned. Check the bank's CD terms before opening to see what the penalty is.
Is my money safe in an online bank?
Yes, if the bank is FDIC-insured. FDIC insurance protects your deposits up to $250,000 if the bank fails. Most online banks are FDIC-insured. Check the bank's website or the FDIC's bank search tool to confirm before opening an account.
Can I move my money to a different bank if the APY drops?
Yes. You can transfer money from one bank to another in one to three business days. There is no penalty for moving money out of a high-yield savings account or money market account. You lose a few days of interest during the transfer, but if the rate drops significantly, moving to a higher-paying bank is worth it.
Why do some banks offer promotional rates?
Promotional rates are used to attract new customers. A bank might offer 5.50% for three months, then drop to 4.50% after that. Read the terms carefully to see how long the promotional rate lasts and what the regular rate will be. A lower rate that stays the same is often better than a high promotional rate that expires.