What Is the Average Interest Rate on a Savings Account?

When it comes to the interest rate paid on savings accounts, you don't want to be average.Image source: Getty Images.

Savings accounts aren't supposed to make you rich, but that doesn't mean you have to settle for average. Though the vast majority of banks pay close to zero interest on savings accounts, there are many others that pay 10 to 20 times the national average and boast features like fee-free ATMs, mobile banking, and online bill pay.

I won't waste your time: The national average interest rate on a savings account was 0.08% per year in September 2018, according to data compiled by RateWatch and reported by the FDIC. But that number should be buried in asterisks and footnotes because many banks pay so much more, and because the figure is calculated in a different way than you might expect.

Why are savings account rates so low?

The interest rate I quoted above -- 0.08% per year -- is calculated from some of the most complete data money can buy. RateWatch compiles rates from tens of thousands of FDIC-insured bank branches across the United States every single week, averages them, and then makes its data available to banks and regulators alike.

Data source: RateWatch, FDIC.

Each week, RateWatch surveys thousands of bank offices across the country, asking them for rates on savings accounts with $2,500 in deposits. The only problem is that surveying individual branches means that America's megabanks, which have the largest branch networks and pay the lowest interest rates, drag down the average. In addition, online banks, which don't have branches, are underrepresented in the data.

So, if you threw a dart at a map of the United States, and opened a bank account at the branch closest to where your dart landed, you'd probably hit a bank that paid something close to 0.08% per year on savings accounts. That said, if you spend just five minutes to find the best online bank accounts, you'll easily score an interest rate several times higher than average.

How to get a higher interest rate on your savings account

Banking is boring and seemingly complex, but it is also one of the most competitive industries on the planet. There are more than 4,800 banks in the United States and thousands more credit unions, all of which are competing with one another to find more depositors.

Some banks compete by having the best free lollipops at the counter. Others hope to win you over with attractive advertising on TV. But there are many banks that simply compete on rates alone, paying as much as they can to attract people who simply care about getting the best interest rate possible.

Here are a few ways to get a higher rate on your savings account:

• Consider banking online -- Internet banks cut out costly branches, enabling them to offer more competitive interest rates on savings accounts. In addition, online banks often have some of the lowest fees, and reimburse ATM fees, something few brick-and-mortar banks do. If you're on the fence about banking online, you can always start slow. Keep your savings you don't need from day to day in an online bank. Use an offline bank for a transactional account (like a checking account).
• Venture into money market accounts (MMAs) -- MMAs are a little weird because they pay higher rates like savings accounts but offer checks like checking accounts, except they are not checking accounts because bank regulations say they aren't. From your perspective as a bank's customer, a money market account can be thought of as a hybrid account that pays a higher rate of interest primarily because they require higher minimum deposits.
• Consider a certificate of deposit (CD) instead -- Savings accounts generally pay a low amount of interest because you can withdraw the money at any time. However, banks will pay you more if you can commit to keeping your money with the bank for a longer period of time. This is how a CD account works: You make a deposit with the promise to keep it there for a period ranging from one month to five years, and the bank will give you a higher interest rate on the money because of it.

To sum it all up, there are really only three ways to get a higher interest rate on your savings account. The first way is to shop where banking is most competitive, which is on the internet, where hundreds of banks are competing to win your deposits through your computer screen.

Beyond that, the only way to get a higher rate is to keep a higher minimum balance (MMAs reward you for that) or lock up your money for a longer period of time (CDs are the tool to capitalize on this).