Banks that pay interest on savings accounts
Most banks pay interest on savings accounts, but the rate varies widely — from nearly zero at some large national banks to 4% or higher at online banks and credit unions. The bank you choose makes a real difference in how much your money grows.
The highest rates right now come from online banks like Marcus, Ally, and Capital One 360, which typically offer between 4% and 5.35% annual percentage yield (APY). Credit unions often match or beat these rates for their members. Traditional brick-and-mortar banks — Chase, Bank of America, Wells Fargo — usually pay 0.01% to 0.05% APY, which means your money barely grows at all.
The reason for this gap is simple: online banks have lower overhead costs and pass some of that savings to depositors. They do not maintain physical branches, so they can afford to pay more interest. Credit unions are member-owned, so they also prioritize competitive rates for savers.
Key Takeaways
- Online banks and credit unions currently offer the highest savings rates, ranging from 4% to 5.35% APY, while traditional banks typically pay 0.01% to 0.05%.
- The APY you receive depends on the bank's business model, not on how much money you deposit — most savings accounts pay the same rate to all customers.
- Rates change frequently and are set by each bank independently, so comparing current offers before opening an account matters.
- Your deposits are insured up to $250,000 per account type at FDIC-insured banks and up to $250,000 at NCUA-insured credit unions, regardless of the interest rate.
How to compare rates across different banks
Start by checking the current APY on each bank's website — this is the rate you will actually earn, including the effect of compounding. The APY changes based on Federal Reserve decisions, so a rate that was 5% last month might be 4.75% today. Do not rely on old information.
Look at the fine print for any conditions that affect the rate. Some banks offer a promotional rate for the first three months, then drop to a lower rate. Others require a minimum deposit or a linked checking account to earn the advertised rate. A few banks pay different rates depending on your account balance — you might earn 5% on the first $10,000 and 2% on anything above that.
Use a rate comparison tool like Bankrate, DepositAccounts, or NerdWallet to see multiple banks side by side. These sites update daily and show you the current APY at each institution. You can also call the bank directly and ask what rate you would receive on a new account opened today.
Online banks versus traditional banks
Online banks pay higher interest because they operate with no physical locations. They have no tellers, no branch managers, no real estate costs. That money goes to depositors instead. The tradeoff is that you cannot walk into a branch to deposit cash or speak to someone in person — everything happens by mail, app, or phone.
Traditional banks pay lower rates because they maintain branches, employ staff, and operate in expensive locations. They make money by lending out deposits at higher rates than they pay savers. The difference between what they lend at and what they pay you is their profit margin. Since they have high costs, they keep that margin large, which means you earn less.
Both types of accounts are equally safe if they are FDIC-insured. Your money is protected up to $250,000 whether it sits at Chase or Marcus. The only real difference is convenience — traditional banks offer in-person service, while online banks offer better rates.
Credit unions and their savings rates
Credit unions are member-owned financial institutions that often pay competitive or higher rates than online banks. Because they are not-for-profit organizations, they return earnings to members through better rates and lower fees. You must be a member to open an account, but membership is often free or costs a small one-time fee.
Credit union rates vary by institution — some pay 4.5% APY, others pay 5% or more. The largest credit unions, like Navy Federal and Connexus, are well-known for competitive savings rates. Smaller local credit unions may pay even higher rates, though they sometimes have lower deposit limits or membership restrictions.
To find a credit union near you, search the CO-OP network or the Alliant network, which let you access ATMs and branches across thousands of locations. You can also search by employer, union, or geographic area on the Credit Union Locator website.
What affects the interest rate you receive
The Federal Reserve's interest rate is the biggest factor. When the Fed raises its benchmark rate, banks typically raise savings rates within weeks. When the Fed cuts rates, banks cut savings rates too — sometimes immediately. This is why rates that were 5% a year ago might be 4.5% today.
The bank's own business strategy also matters. Some banks use high savings rates to attract deposits quickly. Others focus on lending and do not care much about deposits, so they pay very little. A bank that is growing fast might offer 5.35% to pull in money. A bank that is full might drop to 4%.
Your account balance does not usually affect the rate. Most banks pay the same APY to someone with $500 and someone with $50,000. A few banks have tiered rates where larger balances earn more, but this is uncommon. Your account type matters more — a money market account might pay slightly more than a regular savings account at the same bank.
How interest compounds and grows your money
Interest compounds, meaning you earn interest on your interest. If you have $10,000 at 5% APY, you earn $500 in the first year. In the second year, you earn 5% on $10,500, not just the original $10,000. Over time, this compounds into real growth.
The difference between a 0.05% rate and a 5% rate is enormous. On $10,000, you earn $5 per year at 0.05% and $500 per year at 5%. Over five years, that is $25 versus $2,763. The bank you choose directly determines how much your money grows.
Compounding frequency also matters slightly. Some banks compound daily, others monthly. Daily compounding is better, but the difference is small — maybe $5 more per year on $10,000. The APY figure already accounts for compounding frequency, so you do not have to calculate it yourself.
Checking current rates and opening an account
Rates change frequently, so check the bank's website the day you plan to open an account. Write down the APY you see, because it may be different tomorrow. Most banks show the current rate prominently on their savings account page.
Opening an account online takes 10 to 15 minutes. You will need your Social Security number, a government ID, and proof of address. Some banks ask for a phone number or email. You can fund the account by transferring money from another bank or by mailing a check.
After you open the account, your interest starts accruing immediately. Most banks deposit interest monthly, though some do it daily or quarterly. You can watch your balance grow in the app or on the website.
Frequently Asked Questions
Do I have to keep a minimum balance to earn the advertised interest rate?
Most online banks do not require a minimum balance. You can open an account with $1 and earn the full APY. Some traditional banks and credit unions require $500 or $1,000 to open, and a few require a higher minimum to earn the advertised rate. Check the bank's terms before opening.
Can I move my money out whenever I want?
Yes. Savings accounts have no withdrawal limits or penalties for taking your money out. You can transfer funds to another bank or withdraw cash at an ATM. The interest rate does not change based on how often you move money.
What happens to my interest if rates drop?
Your rate drops too. Banks adjust savings rates independently, usually within a few weeks of a Federal Reserve change. If you are earning 5% and rates fall, your bank will lower your rate to match the new market. You can move your money to a different bank if you want, but all banks will lower their rates together.
Is my money safe at an online bank?
Yes, if the bank is FDIC-insured. Check the bank's website for the FDIC logo or search the FDIC's bank finder tool. Your deposits are protected up to $250,000 per account type, the same as at any traditional bank. Online banks are regulated the same way as brick-and-mortar banks.
How do I know which bank is best for me?
If you want the highest rate and do not need in-person service, an online bank is the best choice. If you need to deposit cash or speak to someone in person, a traditional bank or credit union is better, even though the rate will be lower. Compare rates at three to five banks and pick the one that offers the highest APY and meets your other needs.