What a normal savings account earns right now
A typical savings account at a big bank earns between 0.01% and 0.05% annual percentage yield (APY) as of 2024. That means on $10,000, you would earn $1 to $5 per year. Some banks pay even less—as low as 0.001% APY. Online banks and credit unions often pay more, ranging from 4% to 5.35% APY on regular savings accounts, though these rates change frequently and depend on the bank's current offers.
The difference between a big bank and an online bank matters. A $10,000 deposit earning 0.01% at a traditional bank generates $1 annually. The same $10,000 at an online bank earning 4.5% generates $450 per year. Over five years, that gap widens to roughly $2,250 in additional earnings, assuming rates stay the same and you do not withdraw the money.
Rates are not locked in. Banks change their savings rates based on what the Federal Reserve does with interest rates. When the Fed raises its benchmark rate, banks may raise what they pay you. When the Fed cuts rates, banks typically lower what they pay. This happened dramatically between 2022 and 2023, when online savings rates jumped from under 1% to over 4% in a matter of months.
Key Takeaways
- Big banks typically pay 0.01% to 0.05% APY on savings accounts, while online banks and credit unions often pay 4% to 5.35% APY on the same type of account.
- The difference between 0.01% and 4.5% APY on $10,000 is roughly $450 per year in additional earnings.
- Savings account rates change when the Federal Reserve adjusts its benchmark rate, so the APY you see today may be different in three months.
- Money market accounts and high-yield savings accounts are the same product at most banks—they both earn the current savings rate and allow withdrawals.
Why big banks pay so little
Large banks pay low rates because they do not need to compete for deposits. They have millions of customers, established branch networks, and brand recognition. Many people keep savings accounts at their main bank out of convenience, even if the rate is poor. The bank knows this and prices accordingly.
Big banks also make money by lending out deposits at much higher rates. If a bank pays you 0.01% on your savings and lends that money to a mortgage borrower at 6.5%, the bank keeps the difference. With low deposit rates, the bank's profit margin on that loan is wider.
Online banks operate differently. They have no branches, no tellers, and lower overhead costs. To attract customers, they pass some of those savings to you in the form of higher rates. An online bank may pay 4.5% APY because it can afford to and still remain profitable.
How the rate you see is calculated
Banks advertise an annual percentage yield, or APY. This is the rate you earn over one year, including the effect of compounding—meaning you earn interest on your interest. Most savings accounts compound daily, so interest is added to your balance every day, and the next day's interest is calculated on the new, slightly larger balance.
The actual math is simple. If your account earns 4.5% APY and you have $10,000, you earn roughly $450 per year. If the bank compounds daily, you earn about $1.23 per day. After 30 days, you have earned roughly $37, and that $37 starts earning interest too—though the amount is tiny.
Some banks advertise an annual percentage rate, or APR, instead of APY. APR does not include compounding, so it understates what you actually earn. Always look for APY when comparing savings accounts. If a bank only shows APR, ask for the APY or move to a bank that is transparent about it.
Comparing savings accounts across different banks
The easiest way to find current rates is to search "high-yield savings account rates" or check financial comparison sites that update daily. Rates change frequently, so a rate you see today may be different next week. Banks that advertise the highest rates are usually online banks or credit unions.
When comparing, look at three things: the APY, whether the rate is may provide or promotional, and any minimum balance requirements. Some banks offer a high rate for the first three months, then drop it. Others require you to keep $25,000 or more to earn the advertised rate. Read the fine print.
You should also check whether the bank is FDIC-insured (for banks) or NCUA-insured (for credit unions). This insurance protects your money up to $250,000 if the bank fails. Almost all legitimate savings accounts carry this protection, but it is worth confirming.
What happens to your rate when the Fed changes course
The Federal Reserve does not set savings account rates directly. Instead, it sets a target range for the federal funds rate, which is the rate banks charge each other for overnight loans. When the Fed raises this rate, banks have more incentive to pay higher rates on deposits to attract money. When the Fed cuts rates, banks lower what they pay you.
The lag between a Fed decision and a rate change at your bank is usually one to two weeks. If the Fed cuts rates by 0.5%, your bank may cut your savings rate by 0.5% within days. If the Fed raises rates, your bank may take longer to raise what it pays you—sometimes weeks or months.
This is why the timing of your deposit matters. If you expect the Fed to cut rates soon, locking in a high rate now by moving your money to a high-yield account makes sense. If rates are likely to rise, you might wait. But predicting Fed moves is difficult, so most people benefit from simply moving to a higher-paying account as soon as they notice the gap.
Money market accounts and high-yield savings: what is the difference
At most banks, a money market account and a high-yield savings account earn the same rate and work the same way. Both allow you to deposit and withdraw money whenever you want. Both are FDIC-insured up to $250,000. The main difference is in the name—banks use different labels for marketing reasons.
Some banks do offer money market accounts with slightly different terms, such as a tiered rate structure where you earn more if you maintain a higher balance. Read the account details carefully to see what you are getting. In most cases, a high-yield savings account is simpler and just as good.
How inflation affects what your savings actually earn
Interest rate alone does not tell the full story. You also need to consider inflation—the rate at which prices rise. If your savings account earns 4.5% APY but inflation is 3.5%, your money is gaining real purchasing power at a rate of about 1% per year. If inflation is 5% and your account earns 4.5%, you are actually losing purchasing power, even though your balance is growing.
This is why the gap between big bank rates (0.01%) and online bank rates (4.5%) matters so much. At a big bank earning 0.01% during a year when inflation is 3%, you are losing about 3% of your money's value. At an online bank earning 4.5%, you are gaining about 1.5% in real value. Over five years, that difference compounds significantly.
Frequently Asked Questions
Can I move my money to a higher-paying account without losing interest?
Yes. Interest accrues daily, so you earn interest up to the day you withdraw. Once you move the money to a new bank, it starts earning the new rate immediately. There is no penalty for moving savings between banks, though the transfer itself takes one to three business days.
What if my bank lowers my rate after I open the account?
Banks can lower rates whenever they want, and they do not need your permission. You have no obligation to stay. If your rate drops and another bank is paying more, you can move your money. This is one reason to check rates every few months and be ready to switch.
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 tax you owe depends on your overall income and tax bracket.
Is there a limit to how much I can earn in interest?
No. You can earn as much interest as your balance and the APY allow. There is no cap on interest earnings. However, the Federal Reserve does limit how often you can withdraw from a savings account—though most banks have removed these limits in recent years.
Why do credit unions sometimes pay more than online banks?
Credit unions are member-owned, not shareholder-owned, so they can return profits to members through higher rates. They also tend to have lower overhead than online banks. However, credit unions are smaller and may have fewer features or less convenient access than large online banks.