What’s the average savings account interest rate?

Advertiser Disclosure: Content provided by Bankrate.com. Fox Business and its content partners earn compensation from the affiliate companies that appear below. This content does not include all available financial offers, and compensation may impact how and where links appear in the content.

The average savings account interest rate is a starting place to understand interest rate trends — but that doesn't mean you can't earn more. 

In fact, many of the best online banks offer rates far above the national average, helping you grow your savings much faster. 

What is the average savings account interest rate? 

The national average interest rate on a savings account is 0.58% as of May 15, 2024, according to Bankrate. That means if you put $10,000 into a savings account earning the average, you’d earn $58 in one year.

While that may not sound very impressive, savings account interest rates have risen steadily over the past few years. For example, the average was just 0.06% in August 2021.

The even better news? Some of the best high-yield savings accounts and CDs offer APYs around 5%. That's almost 10 times the national average. 

How much could I earn in a savings account?

Savings accounts provide security and accessibility to your cash while earning interest.

When it comes to interest, the power of compounding can make a substantial impact. Compounding interest means your money earns interest on itself, accumulating much faster. This cycle repeats and amplifies your returns over time.

Here’s how much $10,000 would be worth in one year at various interest rates. 

The best savings account interest rates

As mentioned, some banks pay much more than the national average. These banks and credit unions currently offer some of the best savings account interest rates as of May 15, 2024. 

How savings account rates are calculated 

Federal Reserve

The Federal Reserve is the central bank of the United States. It sets the federal funds rate, or the interest rate at which banks lend money to each other overnight. When the Fed raises or lowers this rate, it influences the interest rates that banks offer on their products, including savings accounts.

When the federal funds rate is high, banks can charge more for loans and pay more interest on savings accounts. On the other hand, when the federal funds rate is low, banks may offer lower interest rates on savings accounts.

Competition between banks

Another factor that affects savings account interest rates is competition among banks. Banks are constantly vying for customers' deposits, as these funds allow them to make loans and generate profits. To attract savers, some banks may offer higher interest rates than their competitors.

Online banks, in particular, often offer higher savings account interest rates than traditional brick-and-mortar banks. This is because online banks have lower overhead costs and can pass these savings on to their customers in the form of higher interest rates.

APR vs. APY

When comparing savings account interest rates, it's essential to understand the difference between Annual Percentage Rate (APR) and Annual Percentage Yield (APY).

APR is the simple interest rate that the bank pays on your savings account balance. For example, if your savings account has an APR of 1%, and you have $1,000 in your account, you'll earn $10 in interest over the course of a year.

APY, on the other hand, takes into account the effect of compound interest. Compound interest is the interest you earn on your initial deposit plus the interest you've already earned. Essentially, you're earning interest on your interest. APY is usually slightly higher than APR, as it reflects the true earning potential of your savings account.

What else affects savings account interest rates?

Several other factors can impact your savings account interest rates. This includes:

• Economic conditions: During periods of economic growth, the Federal Reserve may raise interest rates to prevent inflation from getting too high. During economic downturns or recessions, the Fed may lower rates to stimulate borrowing and spending.
• Inflation: When inflation is high, the purchasing power of your money decreases. To keep pace with inflation, banks may offer higher interest rates on savings accounts.
• Account balance: Some banks offer tiered interest rates based on your account balance. This means that the more money you have in your savings account, the higher the interest rate you may receive. For example, a bank might offer a 1.00% APY for balances under $10,000, but a 2.00% APY for balances of $10,000 or more.
• Promotional rates: Banks sometimes offer bonus interest rates to attract new customers or encourage existing customers to deposit more money. These rates are usually higher than the bank's basic rates but may only be available for a limited time or require a minimum deposit amount.

How to maximize the interest you earn

Saving money is key to building wealth and financial security, so maximizing how much interest you can earn is a smart idea.

While there are other factors to consider, like accessibility or customer service, make sure you shop around for the best interest rates when picking a savings account.

Pick the right type of deposit account

First, consider the type of account you want. Not all savings accounts are created equal when it comes to interest rates. Here are the main options:

• Traditional savings accounts: These usually have very low interest rates, often less than 0.1%. However, they offer easy access to your money.
• High-yield savings accounts: Online banks tend to offer rates over 5% on these accounts, making them one of the best options for maximizing interest.
• Money market accounts: These accounts earn higher rates than traditional savings accounts, often as high as 5%, but may require a higher minimum balance.
• CDs: Certificate of deposit accounts can earn up to 5% or more but require you to lock up your money for a set period of time to earn that higher rate.

Interest rates will always vary from one bank to the next, so finding the highest yield requires some searching. Compare interest rates offered by large national banks, credit unions, and online banks.

Consider moving your money around

Even if you find the best rate today, you should regularly compare savings account rates. These rates can change almost daily, so even if you had a great rate a few months ago, that may no longer be the case today.

Switching all your banking to a new institution can be a hassle. However, it may be worth moving some of your savings to take advantage of a much higher interest rate. A 1% difference on a $10,000 savings account balance would amount to $100 more interest annually.

Crunch the numbers on your account balances and the rate differences across banks. Pay close attention to any potential fees for transfers or minimum balance requirements.

Set up automatic contributions

Automating your contributions is one of the easiest ways to grow your savings. Set up a weekly or monthly automatic transfer from your checking to your high-yield savings account. Even moving $25 or $50 each month adds up over time. And the larger your balance becomes, the more interest you can earn.

Automatic contributions also help combat the temptation to dip into your savings. By treating transfers like any other monthly bill payment, saving becomes a habit.

Consider compounding frequency

Many savings accounts offer daily compounding, meaning any interest you earn gets added back to your principal daily. This means you're accumulating interest (and growing your balance) faster.

Other accounts may only compound interest monthly or quarterly. Earning interest daily can make a big difference over years of saving — which is why it’s important to consider.

Build a CD ladder

Consider a CD laddering strategy if you decide to open CDs to take advantage of their higher interest rates. The idea is to open several CDs with staggered maturity dates. For example, you might open a 1-year CD, a 2-year CD, and a 3-year CD simultaneously.

When the first CD matures, roll it into a new 3-year one. That way, you’ll always have access to money each year while accessing higher interest rates that often come with long-term CDs.

Maximizing the interest on your savings takes a bit of strategy and effort. However, that extra interest can cost hundreds of dollars over time.

The bottom line

In years past, the average interest rate on savings was near zero — but has since increased several times. These high rates are expected to continue this year, which makes now a great time to move your money into an account earning more interest.

Editorial disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.