What savings accounts earn right now
The amount a savings account earns depends almost entirely on the interest rate the bank or credit union offers. That rate changes constantly—sometimes weekly—and varies widely between institutions. As of early 2024, rates at major national banks range from 0.01% to 0.05% annually, while online banks and credit unions often offer 4% to 5.35% annually on regular savings accounts. The difference between these rates is enormous: a $10,000 deposit earning 0.01% makes $1 per year, while the same deposit at 5% makes $500 per year.
Your actual earnings also depend on how much you keep in the account and how long you leave it there. Interest compounds—meaning you earn interest on your interest—but the frequency of compounding (daily, monthly, or quarterly) matters less than the base rate itself. A bank that compounds daily at 0.05% will still earn you far less than a bank that compounds monthly at 4.5%.
Key Takeaways
- Interest rates on savings accounts vary from under 0.1% at major national banks to over 5% at online banks and credit unions, so shopping around can mean hundreds of dollars more per year on the same deposit.
- Your earnings equal the interest rate multiplied by your balance, so a $5,000 account at 5% earns $250 annually, while the same account at 0.05% earns $2.50.
- Interest compounds regularly (usually daily), meaning you earn small amounts of interest on your previous interest, but only if you leave the money untouched.
- Withdrawals reduce your balance immediately, so taking money out partway through a month means you earn interest on a smaller amount for that period.
- Rates change frequently and are not locked in, so an account earning 5% today might earn 3% in six months if the bank lowers its rate.
How banks calculate what you earn
Banks use a simple formula: Annual Percentage Yield (APY) multiplied by your account balance equals your yearly earnings. If you have $20,000 in an account offering 4.5% APY, you earn $900 per year. If the rate is 0.5% APY, you earn $100 per year on the same $20,000. The APY already includes the effect of compounding, so you do not need to calculate that separately.
The bank calculates interest in smaller chunks—usually daily—and adds it to your account on a schedule (often monthly). So on a $20,000 balance at 4.5% APY, the bank divides 4.5% by 365 days to get a daily rate of about 0.0123%, then multiplies that by your balance each day. After 30 days, those daily deposits add up to roughly $150 in your account. You then earn interest on that $150 in the following month, which is compounding.
The catch: this calculation only works if your balance stays constant. If you withdraw $5,000 midway through the month, you earn interest on $20,000 for half the month and $15,000 for the other half. The bank recalculates based on your actual daily balance.
Why rates differ so much between banks
Online banks typically offer much higher rates than brick-and-mortar banks because they have lower operating costs—no physical branches, fewer employees, cheaper real estate. They pass those savings to customers in the form of higher interest rates to attract deposits. A bank like Ally or Marcus can offer 4.5% to 5% because they spend far less money running the business than Chase or Bank of America.
Credit unions often offer competitive rates because they are member-owned cooperatives, not profit-driven corporations. They return earnings to members rather than shareholders, which sometimes means higher interest on savings. However, credit unions vary widely—some offer rates as low as major banks, while others match online banks.
Large national banks keep rates low because they do not need to compete aggressively for deposits. People open accounts at Chase or Wells Fargo for convenience and brand recognition, not for interest earnings. These banks use customer deposits to fund loans at much higher rates, pocketing the difference. They have no incentive to raise savings rates unless smaller competitors start taking their customers.
How to find the highest rate for your money
Check rate comparison sites like Bankrate, DepositAccounts, or DepositAccounts.com, which update rates daily and let you filter by account type and institution. Call or visit the websites of online banks, credit unions in your area, and any local banks you use. Write down the APY for each, along with any minimum balance requirements or monthly fees that might reduce your earnings.
Remember that the highest rate today may not be the highest rate in three months. Banks lower rates when the Federal Reserve cuts rates, and raise them when the Fed raises rates. If you open an account at 5.35% and the Fed cuts rates, your bank will likely lower your rate to 4% or lower within weeks. You are not locked into the rate you see today.
Some banks offer promotional rates—5.5% for the first three months, then 4.5% after that. Read the fine print to see when the rate drops and whether you can move your money before that happens without penalty.
What reduces your earnings
Monthly maintenance fees eat directly into your interest. If your account earns $5 per month in interest but charges a $10 monthly fee, you actually lose $5 that month. Many online banks have no monthly fees, while some credit unions and regional banks charge $5 to $15 per month. A $10 monthly fee on a $5,000 account earning 4.5% APY ($18.75 per month in interest) cuts your real earnings nearly in half.
Minimum balance requirements can also cost you. Some accounts require you to keep $2,500 or $10,000 in the account at all times. If you fall below that, the bank may charge a fee or drop your interest rate to a lower tier. If you cannot maintain the minimum, you are better off at a bank with no minimum.
Withdrawals reduce your balance and therefore your interest for that period. If you withdraw $3,000 from a $10,000 account, you earn interest on $7,000 going forward. This is not a penalty—it is how interest works—but it means frequent withdrawals mean lower total earnings.
Comparing savings accounts side by side
| Bank Type | Typical APY Range | Typical Minimum Balance | Monthly Fee |
|---|---|---|---|
| Large national bank (Chase, Bank of America, Wells Fargo) | 0.01% to 0.05% | $0 to $500 | $0 to $15 |
| Online bank (Ally, Marcus, Wealthfront) | 4% to 5.35% | $0 to $1 | $0 |
| Credit union | 0.5% to 5% | $25 to $500 | $0 to $10 |
| Regional bank | 0.1% to 2% | $500 to $5,000 | $0 to $12 |
The table shows why online banks dominate for savers: they offer the highest rates with no minimums and no fees. A $10,000 deposit at an online bank earning 5% makes $500 per year. The same deposit at a large national bank earning 0.02% makes $2 per year. Over five years, that is $2,500 versus $10—a difference of $2,490 on the same money.
The real cost of staying at a low-rate bank compounds over time. If you have $25,000 earning 0.03% at a national bank instead of 4.5% at an online bank, you lose $1,125 per year in potential earnings. Over a decade, that is $11,250 in foregone interest on money that was already yours.
When rates change and what to do about it
Banks change savings rates in response to Federal Reserve decisions. When the Fed raises its benchmark rate, banks usually raise savings rates within days or weeks to stay competitive. When the Fed cuts rates, banks cut savings rates much faster—sometimes within hours. This asymmetry means you benefit quickly from rate increases but lose benefits quickly from rate decreases.
You have no obligation to stay at a bank that lowers your rate. If your bank drops from 5% to 3.5%, you can move your money to another bank still offering 5%. There is no penalty for closing a savings account and opening one elsewhere, though the transfer itself takes a few business days. Some people move their money every few months to chase the highest available rate, though this requires staying on top of rate changes.
Set a calendar reminder to check rates every three to six months. If your current bank has dropped below the market rate by 0.5% or more, it is worth moving. On a $25,000 account, a 0.5% difference means $125 per year.
Frequently Asked Questions
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 each January showing how much interest you earned the previous year, and you report that on your tax return. The tax rate depends on your overall income and tax bracket. Interest under $10 is typically not reported, but anything above that counts.
What is the difference between APY and APR on a savings account?
APY (Annual Percentage Yield) includes the effect of compounding and is what you actually earn. APR (Annual Percentage Rate) does not include compounding. For savings accounts, always look at the APY, not the APR. Banks sometimes list APR to make rates look lower than they are.
Can I lose money in a savings account?
No, as long as your bank is FDIC-insured (most are). The FDIC guarantees your deposits up to $250,000 per account. Your balance will never go down due to interest rates or bank decisions. However, inflation can reduce what your money can buy—if inflation is 3% and your account earns 1%, you are losing purchasing power even though your balance grows.
Is it better to move money around to chase higher rates?
Moving money every few months to chase rates higher by 0.25% or 0.5% takes time and attention. If you have $5,000, a 0.5% difference is $25 per year—probably not worth the effort. If you have $50,000 or more, the difference ($250+ per year) may be worth shopping around twice a year. Most people benefit from opening one account at a competitive online bank and leaving it alone.
What happens to my interest if I withdraw money before the end of the month?
You earn interest only on the balance you actually held each day. If you have $10,000 for 15 days and $5,000 for 15 days in a month, you earn interest on roughly $7,500 for that month. There is no penalty for withdrawing—you simply earn less interest that period because your balance was lower.