Most savings accounts do pay interest, but the rate varies widely and some accounts pay almost nothing

A savings account at a bank or credit union will almost always earn interest — that is the whole point of keeping money there instead of under a mattress. But the amount you earn depends on what type of account you open, which institution holds it, and what the current interest rate environment looks like. A high-yield savings account might pay 4 to 5 percent annually right now, while a basic savings account at the same bank could pay 0.01 percent. Both are earning interest. One is just earning so little that it barely keeps up with inflation.

The difference comes down to competition and how the bank uses your money. Banks that compete aggressively for deposits — often online-only banks with lower overhead — tend to offer higher rates. Banks that rely on branch networks and don't need to attract deposits as urgently often pay less. Some accounts, like money market accounts or certificates of deposit (CDs), have different structures that can affect how much you earn and when you can access the money.

Key Takeaways

  • Nearly all savings accounts earn interest, but rates range from nearly zero to over 5 percent depending on the bank and account type.
  • Online banks and credit unions typically offer higher rates than traditional brick-and-mortar banks because they have lower costs.
  • The interest rate your account earns is set by the bank and can change at any time, though banks usually notify you before lowering rates.
  • Money market accounts and CDs are alternatives to regular savings accounts and may offer different rates or terms.
  • The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per account type per bank, regardless of the interest rate.

How banks decide what interest rate to offer

Banks set their own interest rates based on what the Federal Reserve does and what competitors are offering. When the Federal Reserve raises its benchmark interest rate, banks have more room to pay depositors more without cutting into profits. When the Fed lowers rates, banks lower what they pay you. This is why savings account rates have climbed from near zero in 2021 to 4 to 5 percent in 2024 — the Fed raised rates to fight inflation, and banks followed.

Competition also matters. If you live in a market where three banks are all offering 0.5 percent on savings, a new bank moving in might offer 2 percent to attract customers. Online banks, which don't maintain physical branches, can afford to pay more because their costs are lower. A bank that already has plenty of deposits and doesn't need to attract new money has less reason to offer a competitive rate.

The type of account also affects the rate. A regular savings account typically earns less than a money market account or a CD with the same bank, because you can withdraw from a savings account anytime without penalty. A CD locks your money away for a set period — three months, one year, five years — and in exchange the bank pays you more. A money market account sits somewhere in between: higher rates than savings, but you can write checks or make transfers (usually with limits).

Accounts that pay very little or nothing

Some savings accounts do pay interest so low that it rounds to zero. This happens most often at large brick-and-mortar banks that don't compete aggressively on rates. Chase, Bank of America, and Wells Fargo, for example, have offered savings rates as low as 0.01 percent in recent years. At that rate, $10,000 in savings would earn about $1 per year.

Checking accounts almost never pay interest, or pay so little that it does not matter. Some credit unions and online banks offer checking accounts with small interest payments, but this is rare. If you want your money to earn something, a savings account — even a basic one — is the minimum step up.

Savings accounts held in trust for minors, or accounts with restrictions on withdrawals, sometimes have different rate structures. A custodial account for a child might pay less because the bank knows the money will sit there for years. Always check the fine print of any account to see what rate applies and whether that rate can change.

When and how interest rates change

Banks can change the interest rate on your savings account at any time, and they do not need your permission. However, federal law requires banks to notify you before lowering the rate. The notification usually comes by email or mail, and the change takes effect after a waiting period — often 30 days. If you do not like the new rate, you can move your money to another bank.

Rate increases are not required to be announced in advance, so you might simply see a higher rate appear on your statement. This is rare, though, because banks usually raise rates only when the Fed raises rates and competition forces them to. If your bank raises rates, it is usually because they are trying to keep customers from leaving.

The interest rate environment can shift quickly. In 2022 and 2023, as the Fed raised rates, savings account rates climbed from 0.01 percent to 5 percent in a matter of months. If the Fed starts lowering rates again, you can expect savings rates to fall too. This is why it makes sense to shop around every year or two — the best rate today might not be the best rate next year.

How to find accounts that pay more interest

Online banks and credit unions are the most common places to find higher rates. Online banks like Marcus, Ally, and American Express Personal Savings have consistently offered rates at or near the top of the market because they have no branch costs. Credit unions, which are member-owned and not-for-profit, often pay more than banks because they return profits to members rather than shareholders.

Comparison websites like Bankrate, DepositAccounts, and the Federal Deposit Insurance Corporation's own rate search tool let you see what different banks are paying right now. These sites update frequently, sometimes daily, so you can track how rates are moving. When you find an account that pays what you want, check the fine print: some accounts require a minimum balance, charge fees for falling below that balance, or limit how many withdrawals you can make per month.

Credit unions require membership, but membership is often free or very cheap. You might be able to join through your employer, a professional association, or simply by living in a certain area. If you can join a credit union, it is worth checking their rates against online banks.

The relationship between interest rates and account safety

A higher interest rate does not mean an account is riskier. The safety of your money depends on whether the bank or credit union is insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), not on how much interest it pays. FDIC insurance covers up to $250,000 per account type per bank, so as long as you stay under that limit, your money is protected even if the bank fails.

Online banks are FDIC-insured just like brick-and-mortar banks. Credit unions are NCUA-insured, which works the same way. A small online bank paying 5 percent is just as safe as a large national bank paying 0.01 percent, as long as both are insured. The higher rate simply means the online bank is competing harder for your deposits.

If you have more than $250,000 to save, you can spread it across multiple banks or account types to keep everything insured. For example, you could have a savings account at Bank A, a money market account at Bank B, and a CD at Bank C, and all three would be covered up to $250,000 each.

Frequently Asked Questions

Can I move my money to a higher-paying account without losing the interest I already earned?

Yes. Interest accrues daily and is usually deposited into your account monthly. When you close an account or transfer money out, you keep all the interest that has already been paid. You will not earn interest on money after you move it, but nothing you have already earned goes away.

What is the difference between APY and APR on a savings account?

APY (annual percentage yield) is what matters for savings accounts. It includes the effect of compound interest — interest earned on interest. APR (annual percentage rate) is used for loans and does not account for compounding. Always look at the APY when comparing savings accounts, because that is the real amount you will earn.

If I keep my money in a savings account for years, will the interest rate stay the same?

No. Banks change rates frequently, especially when the Federal Reserve changes its benchmark rate. Your rate could go up or down over time. If you want a may provide rate for a set period, a CD locks in the rate for the length of the term — three months, one year, five years, or whatever you choose.

Do I have to pay taxes on savings account interest?

Yes. Interest earned on a savings account is taxable income. Banks 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 is usually small, but it still counts as income.

Why would anyone keep money in an account that pays almost no interest?

Convenience and habit. Many people keep savings at the same bank where they have checking, even if the rate is poor. Others do not know that higher rates exist. If you have money sitting in a 0.01 percent account, moving it to a 4 percent account takes 10 minutes and costs nothing — it is worth doing.