Current savings account rates are between 0.01% and 5.35% APY, depending on the bank and account type

The rate you earn on a savings account depends almost entirely on which bank you choose and what type of account you open. A traditional savings account at a large national bank like Chase or Bank of America typically pays between 0.01% and 0.05% APY. A high-yield savings account (HYSA) at an online bank like Marcus, Ally, or American Express Personal Savings pays between 4.00% and 5.35% APY as of early 2024. Money market accounts fall somewhere in between, usually 0.50% to 4.50% APY.

These rates change frequently—sometimes weekly—because banks adjust them in response to what the Federal Reserve does with its benchmark interest rate. When the Fed raises rates, banks gradually raise what they pay depositors. When the Fed cuts rates, banks cut what they pay you. The gap between what a big bank pays and what an online bank pays can mean hundreds of dollars per year on the same $10,000 balance.

Key Takeaways

  • Online banks and credit unions typically pay 4.00% to 5.35% APY on savings accounts, while traditional brick-and-mortar banks pay 0.01% to 0.05% APY on the same type of account.
  • The rate you receive depends on the bank's funding model and operating costs, not on how much money you deposit or how long you keep it there.
  • High-yield savings accounts have no withdrawal limits or lock-in periods, so you can move your money if a bank lowers its rate.
  • Money market accounts and certificates of deposit (CDs) offer different rate structures and access rules than traditional savings accounts.
  • Rates change weekly or monthly based on Federal Reserve policy, so the highest-paying account today may not be the highest-paying account in three months.

Why rates differ so much between banks

A bank's savings rate reflects its cost of doing business. A large national bank with thousands of physical branches, millions of customers, and expensive advertising has high overhead. It can afford to pay you 0.02% because it makes money by lending out deposits at much higher rates and because many customers never shop around. An online bank with no branches, no tellers, and a small marketing budget has much lower costs. It can afford to pay you 5.00% and still profit, because it passes the savings on to attract customers who do comparison shop.

Credit unions, which are member-owned rather than shareholder-owned, also tend to pay higher rates than traditional banks. They return profits to members instead of to investors. Some credit unions pay 4.00% to 5.00% APY on savings accounts, though you must be a member to open an account, and membership sometimes requires living or working in a specific area or belonging to a particular employer or organization.

How the Federal Reserve 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 rate influences everything else: mortgage rates, credit card rates, and savings account rates. When the Fed raises its target rate, banks eventually raise the rates they pay on savings accounts. When the Fed cuts rates, banks cut what they pay you.

The lag between a Fed move and a bank's response varies. Some online banks raise rates within days of a Fed increase. Traditional banks often wait weeks or months, or raise rates only slightly. When the Fed cuts rates, banks tend to cut what they pay depositors much faster than they cut what they charge borrowers—this is why your savings rate can drop overnight but your mortgage rate stays the same.

Savings accounts versus money market accounts versus CDs

A savings account lets you withdraw money anytime without penalty. You can add or remove funds as often as you want. The rate is variable, meaning it can change at any time. Most online banks pay 4.00% to 5.35% APY on savings accounts with no minimum balance.

A money market account is a hybrid between a savings account and a CD. It usually pays a higher rate than a savings account (often 4.50% to 5.00% APY) but may require a higher minimum balance—sometimes $2,500 to $25,000. Some money market accounts limit how many withdrawals you can make per month. The rate is still variable.

A certificate of deposit (CD) locks your money away for a set period—3 months, 6 months, 1 year, 5 years—in exchange for a may provide rate. A 1-year CD might pay 4.50% to 5.00% APY. A 5-year CD might pay 4.00% to 4.75% APY. If you withdraw before the term ends, you pay a penalty (usually a few months of interest). The rate does not change during the term, so you know exactly what you will earn.

How to find the highest rate for your situation

If you need access to your money, a high-yield savings account is the right choice. Check rates at online banks like Marcus, Ally, American Express Personal Savings, Discover, and Wealthfront. Rates change frequently, so compare at least three banks before opening an account. Most online banks publish their current rates on their website.

If you have money you will not need for a specific period—say, six months or a year—a CD might lock in a better rate than a savings account. Use a CD rate comparison site or check your current bank's CD rates. Remember that CD rates are usually lower for longer terms, so a 1-year CD often pays more than a 5-year CD.

If you belong to a credit union, check what it pays on savings accounts. Credit union rates are often competitive with online banks and sometimes higher. You may also have access to credit union CDs at rates that beat traditional banks.

What happens to your rate when the Fed changes course

When the Federal Reserve raises rates, online banks typically raise their savings rates within one to two weeks. Traditional banks may wait longer or raise rates by a smaller amount. If you have money in a traditional bank savings account, you will not see much benefit from a Fed rate increase.

When the Fed cuts rates, online banks usually cut their savings rates within days. This is why it matters where you keep your money: a 5.00% rate can drop to 4.50% or lower within a week of a Fed cut. If you want to protect your rate, a CD locks it in for the full term. If you want flexibility, you accept that your rate will move with the market.

Frequently Asked Questions

Is 5% APY on a savings account real or a promotional rate?

It is real, not promotional. Online banks like Marcus, Ally, and American Express Personal Savings currently pay between 4.00% and 5.35% APY on regular savings accounts with no time limit and no minimum balance. These are permanent rates, not introductory offers. However, these rates can drop if the Federal Reserve cuts interest rates or if a bank decides to lower its rates to reduce costs.

Why does my bank pay 0.01% when other banks pay 5%?

Your bank has higher operating costs because it runs physical branches and employs tellers. It also knows many customers do not shop around, so it does not need to offer competitive rates to keep deposits. You can move your money to an online bank and earn 100 times more interest on the same balance, with no penalty for switching.

If I move my savings to a high-yield account, will I lose FDIC protection?

No. All banks that offer FDIC-insured accounts—whether online or brick-and-mortar—protect your deposits up to $250,000 per account holder per bank. Online banks are FDIC-insured just like traditional banks. Check the bank's website to confirm it displays the FDIC logo or states it is FDIC-insured.

Should I lock money in a CD or keep it in a savings account?

Use a CD if you know you will not need the money for a specific period and want to lock in a rate. Use a savings account if you might need the money sooner or want the flexibility to move it if rates drop. CDs usually pay slightly more, but the difference is small enough that flexibility often matters more.

How often do savings account rates change?

Online banks can change rates weekly or monthly. Traditional banks change rates less frequently. You will not see a change every week, but rates can shift several times per year depending on Federal Reserve policy. Set up rate alerts or check your bank's website monthly if you want to know when your rate changes.