What savings accounts pay in interest right now
The amount your savings account earns depends almost entirely on the interest rate your bank or credit union sets, which changes based on what the Federal Reserve does with its benchmark rate. As of early 2025, savings accounts at traditional banks typically pay between 0.01% and 0.05% annual percentage yield (APY), while online banks and credit unions often pay between 4.5% and 5.35% APY. The difference is real money: on $10,000, a traditional bank might pay $1 to $5 per year, while an online bank could pay $450 to $535 per year.
Banks set their own rates within the limits of what they can afford to pay. They take deposits, lend that money out at higher rates, and keep the difference as profit. When the Federal Reserve raises its benchmark rate, banks have more room to pay depositors more without cutting into their margins. When the Fed cuts rates, banks lower what they pay savers. Your bank is not required to match what competitors pay, so rates vary widely even when the Fed rate is the same.
The rate you see advertised is the APY, which accounts for how often the bank compounds interest (adds earned interest back into your account so it earns interest too). A bank that compounds daily will show a slightly higher APY than one that compounds monthly, even if the base rate is the same. Always compare APY, not the base rate, because APY is what you actually earn.
Key Takeaways
- Online banks and credit unions currently pay 4.5% to 5.35% APY, while traditional brick-and-mortar banks typically pay 0.01% to 0.05% APY on regular savings accounts.
- The rate your bank pays depends on what the Federal Reserve's benchmark rate is and how much profit margin the bank wants to keep.
- Banks lower their rates when the Fed cuts rates and raise them when the Fed raises rates, though the timing and amount vary by bank.
- APY (annual percentage yield) is the only number that matters when comparing accounts, because it includes the effect of compounding.
- High-yield savings accounts at online banks offer the same FDIC protection as traditional banks but pay significantly more interest.
Why online banks pay more than traditional banks
Online banks have lower overhead costs than banks with physical branches. They do not pay for building leases, teller salaries, or branch managers. Because their costs are lower, they can afford to pay depositors more and still make a profit. A traditional bank with hundreds of branches across the country has to cover all those expenses before it can pay you anything on your savings.
Credit unions also tend to pay higher rates than traditional banks because they are member-owned cooperatives, not shareholder-owned corporations. A credit union's goal is to serve its members, not maximize profit for investors, so more of the money the credit union makes goes back to members in the form of higher rates and lower fees.
The trade-off is convenience. An online bank has no physical location, so you cannot walk in to deposit cash or speak to someone face-to-face. Most online banks let you deposit checks by phone camera or transfer money from another bank account, but cash deposits require a workaround like using an ATM at a partner network or transferring cash through another account. If you rarely use cash, this is not a problem. If you deposit cash regularly, a traditional bank or credit union with a branch may be worth the lower interest rate.
How the Federal Reserve rate affects what you earn
The Federal Reserve sets a target range for the federal funds rate, which is the interest rate banks charge each other for overnight loans. This is not the rate your bank pays you, but it sets the ceiling for what banks can afford to pay savers. When the Fed raises its rate, banks have more room to pay higher rates without losing money. When the Fed cuts its rate, banks cut what they pay you.
The lag between a Fed rate change and a bank rate change is usually one to three weeks, but some banks move faster and some move slower. A bank that wants to attract new deposits might raise its rate within days of a Fed increase. A bank that is trying to reduce deposits (because it has too much cash on hand) might wait weeks or not raise its rate at all. You cannot predict which banks will move first, so if you want the highest rate available, you have to check multiple banks after a Fed announcement.
The Fed has cut rates several times since 2023, and savings account rates have fallen as a result. Rates that were above 5% in 2023 are now typically between 4.5% and 5.35%. If the Fed raises rates again, online banks will likely raise their rates too, but there is no may provide they will raise them as much as they did in the past.
How much interest compounds and how often
Compounding means the bank adds your earned interest back into your account, and then you earn interest on that interest. If you have $10,000 in an account paying 5% APY and the bank compounds daily, you earn about $500 in the first year. In the second year, you earn interest on $10,500, so you earn about $525. The difference grows over time, but it is small in the first few years.
Most savings accounts compound daily, which is the most frequent option. Some compound monthly or quarterly. Daily compounding earns you slightly more than monthly compounding, but the difference is usually less than a dollar per year on a typical savings account balance. The APY already accounts for compounding, so you do not have to do any math yourself—the APY is what you will actually earn.
Compounding matters more when you leave money in the account for years without touching it. If you are saving for a goal you plan to reach in one to three years, the compounding difference is negligible. If you are building long-term wealth and plan to leave the money alone for a decade or more, daily compounding saves you money compared to monthly compounding, but the bigger factor is still the base interest rate.
Comparing rates across banks and credit unions
The best way to find the highest rate is to check rate-tracking websites that update daily, such as Bankrate, DepositAccounts, or the FDIC's own rate database. These sites let you filter by account type (savings, money market, CD) and sort by APY. You can also visit individual bank websites directly, though this takes longer if you are comparing more than a few banks.
When you compare rates, make sure you are looking at the same type of account. A high-yield savings account at an online bank will pay more than a regular savings account at the same bank. A money market account might pay slightly more than a savings account but usually comes with check-writing privileges and higher minimum balances. A certificate of deposit (CD) locks your money away for a set time but often pays more than a savings account.
Check whether the rate is promotional or permanent. Some banks offer a higher rate for the first three or six months to attract new customers, then drop the rate. The bank should disclose this clearly, but read the fine print. A permanent rate that is slightly lower might be a better choice than a promotional rate that will drop later.
FDIC insurance and rate safety
All banks that display the FDIC logo are required to carry FDIC insurance, which protects your deposits up to $250,000 per account type per bank. This means if the bank fails, the FDIC will return your money. Online banks are FDIC-insured just like traditional banks, so the higher interest rate does not come with higher risk of losing your money.
Credit unions are insured by the National Credit Union Administration (NCUA), which works the same way as FDIC insurance. Your deposits are protected up to $250,000 per account type per credit union. If you have more than $250,000 to save, you can split it across multiple banks or credit unions to keep all of it insured.
The interest rate a bank pays has nothing to do with whether it is safe. A bank paying 0.01% is just as likely to fail as one paying 5%. The rate reflects the bank's business model and cost structure, not its financial health. Before opening an account, check that the bank or credit union displays the FDIC or NCUA logo on its website.
What happens to your rate if the Fed cuts rates again
If the Federal Reserve cuts its benchmark rate, online banks and credit unions will almost certainly cut the rates they pay on savings accounts within a few weeks. How much they cut depends on how much the Fed cuts and how much competition there is for deposits. If the Fed cuts by 0.5%, banks might cut by 0.5% or they might cut by less if they want to keep customers.
Banks that are struggling to attract deposits might cut less than banks that have plenty of deposits. A bank with too much cash on hand might cut aggressively to discourage new deposits. A bank that needs more deposits might hold its rate steady or cut only slightly. You cannot predict which banks will do what, but you can watch what happens after a Fed announcement and move your money if your current bank cuts too much.
There is no penalty for moving money from one savings account to another. You can open a new account at a higher-paying bank and transfer your balance over in a few business days. Some banks offer switching bonuses (cash rewards for opening a new account and depositing a minimum amount) to make the move worth your while.
Frequently Asked Questions
Is the interest rate may provide to stay the same?
No. Banks can change the rate they pay on savings accounts at any time without notice, though most give customers a few days' warning. The rate is may provide only for the day you see it advertised. If you want to lock in a rate, you can open a certificate of deposit (CD), which guarantees a fixed rate for a set period (usually three months to five years).
Why does my bank pay less interest than online banks?
Traditional banks with physical branches have higher costs and can afford to pay less. Online banks have no branches, so they pass the savings on to depositors in the form of higher interest rates. If you value having a branch location nearby, you are paying for that convenience with lower interest.
How much interest will I earn on $5,000?
At 5% APY, you would earn about $250 per year, or roughly $20 per month. At 0.05% APY (typical for traditional banks), you would earn about $2.50 per year. The difference is significant over time, which is why choosing a higher-paying account matters even if the rate seems small.
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 higher the interest rate, the more you will owe in taxes, but you still come out ahead with a higher rate.
Can I move my money if my bank lowers the rate?
Yes. You can transfer your balance to another bank at any time with no penalty. There is no lock-in period for savings accounts (unlike CDs). If your bank cuts its rate and you find a better rate elsewhere, you can move your money within a few business days.