Banks pay between 0.01% and 5.35% APY on savings accounts, depending on the bank and account type

The interest rate your bank pays on a savings account is set by that bank alone — there is no standard rate across the industry. A traditional bank might pay 0.01% APY, meaning $10,000 earns $1 per year. An online bank might pay 4.5% APY on the same $10,000, earning $450 per year. The difference comes down to how much the bank needs to attract deposits and what it costs them to operate.

Interest rates change constantly. Banks raise them when the Federal Reserve raises its benchmark rate, and lower them when the Fed cuts. Your bank is not required to pass along the full change — some do, some do not. The only way to know what your bank is currently paying is to log in, call them, or check their website. Rates posted online are current as of the date shown, but may have changed since.

The money you earn is taxed as ordinary income in the year you earn it, even if you do not withdraw it. A bank will send you a 1099-INT form at tax time if you earned $10 or more in interest during the year.

Key Takeaways

  • Banks set their own savings rates; the same $10,000 can earn $1 at one bank and $450 at another depending on the rate.
  • Online banks typically pay higher rates than brick-and-mortar banks because they have lower operating costs.
  • Interest rates move when the Federal Reserve changes its benchmark rate, but your bank may not pass along the full change.
  • Interest earned on savings is taxed as income, and you will receive a 1099-INT form if you earn $10 or more in a year.
  • The rate your bank pays can change at any time without notice, so checking it periodically helps you decide whether to move your money.

Why rates differ between banks

Online banks almost always pay more than traditional banks. An online bank has no branch network, no tellers, and no physical real estate — those savings get passed to depositors as higher interest rates. A traditional bank with hundreds of branches has much higher overhead and typically pays less on savings.

Banks also compete for deposits based on size and strategy. A large national bank may pay very little on savings because customers keep money there for convenience, not yield. A smaller online bank or credit union may pay more to attract deposits from people who shop around. During periods when the Fed is raising rates, competition intensifies and rates climb faster. When the Fed is cutting rates, banks lower rates quickly to protect their profit margins.

Account type matters too. A money market account might pay slightly more than a regular savings account at the same bank. A certificate of deposit (CD) locks your money away for a set term — three months, one year, five years — and usually pays more than a savings account because the bank knows it can use that money for longer. A high-yield savings account is simply a savings account at an online bank that pays a competitive rate; there is nothing special about the account itself.

How interest compounds and when it posts

Interest compounds daily at most banks, meaning the bank calculates interest on your balance each day, adds it to your account, and then calculates the next day's interest on the new, slightly larger balance. This creates a compounding effect — you earn interest on your interest. The more often interest compounds, the more you earn, though the difference between daily and monthly compounding is usually small on a savings account.

Interest typically posts to your account monthly, though some banks post it daily or quarterly. Posting means the interest actually appears in your balance and becomes yours to keep. Until interest posts, it is not yet in your account. If you close the account before interest posts, you may lose it — check your bank's policy.

The APY (annual percentage yield) shown on a bank's website already accounts for compounding, so you can compare rates directly. If Bank A shows 4.5% APY and Bank B shows 4.5% APY, you will earn the same amount over a year, regardless of how often each bank compounds.

How the Federal Reserve affects what your bank pays

The Federal Reserve sets a benchmark interest rate called the federal funds rate. When the Fed raises this rate, banks can charge more to borrowers and need to pay less to attract deposits — but many do raise savings rates anyway because competition forces them to. When the Fed cuts the rate, banks lower savings rates because they can afford to and because they need to keep deposits flowing in.

Your bank is not required to match the Fed's moves. A bank might raise savings rates by 0.25% when the Fed raises by 0.25%, or it might raise by only 0.1%. Similarly, when the Fed cuts, your bank might cut by the full amount or by less. Large banks often lag behind on rate increases and move faster on rate cuts. Online banks and smaller institutions tend to move rates more quickly in both directions.

The Fed does not set a specific savings rate — it sets a range for the federal funds rate, and banks respond based on market conditions. If you want to know whether your bank is keeping pace with Fed moves, compare its current rate to what it was offering three or six months ago.

Comparing rates across banks

To find the highest rate, check the websites of online banks, credit unions, and the savings pages of large national banks. Rates change frequently, so a list printed today will be outdated in weeks. Look for the APY, not the interest rate — APY is the standardized measure that accounts for compounding.

Watch for promotional rates. Some banks offer a higher rate for the first few months, then drop it to a much lower rate. Read the fine print to see when the promotional period ends and what the regular rate will be. A 5% rate for three months followed by 0.5% is not as good as a steady 4.5%.

Consider the bank's other features too. If you need to withdraw money frequently, make sure the bank allows unlimited transfers without penalty. If you want to keep money parked for a year or more, a CD might pay more than a savings account. If you want the flexibility to move money quickly, a high-yield savings account is simpler than a CD.

What happens to your rate if the bank changes it

Banks can change savings rates at any time without notice. They are not required to tell you in advance. Some banks notify customers by email or mail, others do not. The safest approach is to check your bank's website or app periodically — at least every few months — to see if the rate has moved.

If your bank lowers its rate and you have a large balance, moving your money to a higher-paying bank might make sense. The time to move is before rates drop further, not after. If your bank raises its rate, you benefit automatically — no action needed.

Rates on CDs are locked in for the term of the CD, so a rate change at your bank does not affect a CD you already own. If you buy a CD and rates rise the next day, you are stuck with the lower rate unless you withdraw early and pay a penalty.

How much interest you actually earn

The amount depends on three things: your balance, the APY, and how long the money sits in the account. A simple formula is: balance × APY ÷ 12 = monthly interest (approximately). A $10,000 balance at 4.5% APY earns roughly $37.50 per month, or $450 per year. At 0.01% APY, the same $10,000 earns about $0.08 per month, or $1 per year.

The difference between a 0.01% bank and a 4.5% bank is $449 per year on $10,000. On $100,000, it is $4,490 per year. This is why shopping for rates matters if you have a substantial balance sitting in savings.

Interest earned is taxed as ordinary income. If you earn $450 in interest, that $450 is added to your taxable income for the year. Your tax bracket determines how much of that goes to taxes. At a 24% tax rate, $450 in interest costs you about $108 in federal taxes.

Frequently Asked Questions

Can I move my money to a higher-paying bank without losing interest?

Yes. Interest accrues daily, so you earn interest right up until the day you withdraw. Once you move the money to a new bank, it starts earning at the new bank's rate. There is no penalty for moving savings between banks, though the transfer itself may take a few business days.

What if my bank's rate drops after I deposit money?

You keep earning at the old rate until the bank changes it. Once the bank changes the rate, all new interest accrues at the new rate. You can withdraw your money and move it to a higher-paying bank at any time without penalty.

Do credit unions pay more interest than banks?

Some do, some do not. Credit unions are member-owned and often have lower overhead than large banks, so they can pay competitive rates. However, an online bank might pay more than a local credit union. Compare the actual rates rather than assuming one type of institution pays more.

Is interest paid monthly or yearly?

Interest compounds daily at most banks, meaning it is calculated and added to your account every day. It typically posts (becomes visible in your balance) monthly, though some banks post it daily or quarterly. The APY already accounts for this compounding, so you do not need to do any math yourself.

What happens to my interest if I close the account?

Interest that has already posted to your account is yours — you keep it when you close. Interest that has accrued but not yet posted may be lost, depending on the bank's policy. Check with your bank before closing to see when the next interest posting date is.