Yes, savings accounts earn interest, but the rate depends on the bank and account type

Most savings accounts do earn interest, though the amount varies widely. A traditional savings account at a large brick-and-mortar bank might earn 0.01% annual percentage yield (APY), meaning $10,000 would earn about $1 per year. A high-yield savings account at an online bank might earn 4% to 5% APY on the same $10,000, which would be $400 to $500 per year. The difference comes down to where you bank and what type of account you open.

Interest rates change constantly based on what the Federal Reserve does with its benchmark rate. When the Fed raises rates, banks typically raise what they pay on savings. When the Fed cuts rates, savings rates fall. This means the rate you see today may not be the rate you earn six months from now.

Key Takeaways

  • High-yield savings accounts at online banks currently pay 4% to 5% APY, while traditional bank savings accounts often pay less than 0.1% APY.
  • Interest rates on savings accounts move with Federal Reserve decisions, so rates you see now will likely change within months.
  • Money market accounts and certificates of deposit (CDs) can earn higher rates than savings accounts, but with different access rules.
  • Your bank compounds interest daily, weekly, or monthly depending on the account, which affects how much you actually earn.
  • The Federal Deposit Insurance Corporation (FDIC) protects up to $250,000 per account type at each bank, regardless of the interest rate.

How interest rates differ between account types and banks

The biggest gap is between online banks and traditional banks. Online banks have lower overhead costs—no branches, fewer employees—so they pass some of that savings to customers through higher interest rates. A high-yield savings account at an online bank like Marcus, Ally, or American Express Personal Savings typically pays 4% to 5% APY. The same account at Chase, Bank of America, or Wells Fargo pays closer to 0.01% to 0.05% APY.

Money market accounts sit between regular savings and checking accounts. They usually pay higher interest than savings accounts but require a higher minimum balance and limit how many withdrawals you can make per month. Rates on money market accounts currently range from 4% to 5% APY at online banks.

Certificates of deposit (CDs) lock your money away for a set period—three months, six months, one year, five years—and pay a fixed rate for that entire term. Because the bank knows it has your money for that time, CD rates are often higher than savings account rates. A one-year CD might pay 4.5% to 5.5% APY, but you cannot touch the money without paying an early withdrawal penalty.

What compounding means for your money

Interest compounds, meaning you earn interest on the interest you already earned. Most savings accounts compound daily, which is the most frequent option. Some compound weekly or monthly, which earns you slightly less.

Here is how it works: if you have $10,000 in a 5% APY account that compounds daily, the bank divides 5% by 365 days and calculates your interest each day. That daily interest gets added to your balance, and the next day you earn interest on the new, slightly larger balance. Over a year, daily compounding adds up to more than if the bank only calculated interest once at the end of the year.

The difference between daily and monthly compounding on $10,000 at 5% APY is roughly $40 to $50 per year. It matters, but it is not the main factor. The interest rate itself matters far more than how often it compounds.

How to find current rates and compare accounts

Interest rates change frequently, so checking a website today and then opening an account next week might mean you miss a rate change. Before you open an account, visit the bank's website directly and look for the APY listed on the savings account page. Banks are required to display APY clearly, usually near the account description.

Comparison sites like Bankrate, DepositAccounts, and NerdWallet show current rates across multiple banks, updated daily. These sites let you filter by account type, minimum balance, and whether you need to be in a specific state to open the account. Some online banks have no geographic restrictions; others are available only in certain states.

When comparing, check three things: the APY, the minimum balance required to earn that rate, and whether the rate is promotional or permanent. Some banks offer a higher rate for the first few months to attract new customers, then drop the rate. Read the fine print to see when the promotional period ends.

FDIC protection and what happens if the bank fails

The Federal Deposit Insurance Corporation (FDIC) insures deposits at member banks up to $250,000 per account type at each bank. This means if you have $250,000 in a savings account at Bank A and that bank fails, the FDIC will return your full $250,000. If you have $300,000, the FDIC covers $250,000 and you lose $50,000.

The $250,000 limit applies per account type per bank. You can have $250,000 in a savings account and $250,000 in a money market account at the same bank and both are fully covered. If you have $250,000 in a savings account at Bank A and $250,000 in a savings account at Bank B, both are fully covered because they are at different banks.

Online banks are FDIC-insured just like traditional banks. The fact that you cannot walk into a branch does not change the insurance. Check the bank's website for the FDIC certificate number to confirm membership.

Why rates are higher now than they were a few years ago

From 2020 to 2021, savings account rates were near zero because the Federal Reserve kept its benchmark rate at 0% to support the economy during the pandemic. Starting in 2022, the Fed began raising rates to fight inflation, and banks raised savings rates in response. By late 2023 and into 2024, high-yield savings accounts reached 4% to 5% APY—rates not seen in over a decade.

These higher rates will not last forever. When the Fed eventually lowers rates again, banks will lower what they pay on savings. This could happen within months or take years, depending on inflation and economic conditions. If you find a rate you like now, locking it in with a CD protects you if rates fall later. If you think rates will keep rising, a savings account lets you move your money if a better rate appears.

Frequently Asked Questions

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 1099-INT form at the end of the year if you earned $10 or more in interest. You report this on your tax return. The amount of tax you owe depends on your tax bracket and total income.

Can I move my money between banks if rates change?

Yes. You can withdraw money from one bank and deposit it at another whenever you want. There are no penalties for moving savings between banks. The only time you face a penalty is if you withdraw from a CD before the term ends, which is called an early withdrawal penalty.

What is the difference between APY and APR?

APY (annual percentage yield) includes compounding, so it shows the actual amount you will earn in a year. APR (annual percentage rate) does not include compounding. For savings accounts, always look at APY. APR is used for loans and credit cards.

Is a high-yield savings account safe?

Yes, if the bank is FDIC-insured. Check the bank's website for its FDIC certificate number. As long as your balance stays under $250,000 per account type, your money is protected even if the bank fails. The trade-off is that online banks have fewer services and no physical branches.

How much interest will I actually earn?

That depends on your balance and the rate. Use this formula: (balance × APY ÷ 365) × number of days. For example, $10,000 at 5% APY for one year earns roughly $500. For one month, it earns roughly $42. The exact amount varies slightly based on how the bank calculates daily interest.