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Fact Checked
Eric McWhinnie
Those new to banking -- or even some who have been at it a while -- may be surprised to learn that not all interest is bad. Unlike the interest fees you're charged for credit products, savings account interest works for you, earning you income on deposits.
Thanks to ongoing Federal Reserve rate hikes, interest rates are hitting recent highs. It's a good time to have money invested in a savings account.
And the best part is, some banks adjust their rates automatically, no work needed on your part. You may even be making more money from your deposits without realizing it -- but first, you’ll want to know what an interest rate is and why it matters.
What is savings account interest?
The interest on a savings account is the fee you earn for keeping your money in the bank. Why?
Banks use the collective money deposited by account holders to finance loans and other investments. Interest fees are paid to you by the bank as compensation for letting them use your deposits as capital for investments.
(Don't worry, the bank never uses all of its deposits; you can withdraw your money at any time.)
How much interest you earn on your money is determined by your savings account's interest rate. As such, one of the first things we should all ask when evaluating a savings account is, "What is my interest rate on my savings account?"
The very best savings accounts will offer a high interest rate that can help boost your savings. How much interest you earn will vary a lot depending on the bank and account type, so it's important to shop around for the best rates.
High-yield savings account comparison
We recommend comparing high-yield savings account options to ensure the account you're selecting is the best fit for you. To make your search easier, here's a short list of standout accounts.
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| Account | APY | Promotion | Next Steps |
|---|---|---|---|
Rating image, 4.75 out of 5 stars.
4.75/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
up to 4.60%
Rate info
You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.
Min. to earn: $0
|
New customers can earn up to a $300 bonus with qualifying direct deposits!
|
|
Rating image, 4.75 out of 5 stars.
4.75/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
5.05% APY for balances of $5,000 or more
Rate info
5.05% APY for balances of $5,000 or more; otherwise, 0.25% APY
Min. to earn: $100 to open account, $5,000 for max APY
|
N/A
|
|
Rating image, 4.00 out of 5 stars.
4.00/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair = Poor |
4.35%
Min. to earn: $0
|
New customers can earn a $200 bonus with a minimum $25,000 qualifying deposit. Terms apply.
|
Where to find your savings account interest rate
The simplest way to find your current savings account interest rate is online:
- Log into your online banking account through a web browser or the bank's mobile app.
- Select the account you want more information about.
- Look for a section that says "account details" or similar.
- Scroll until you find your interest rate
Along with your interest rate, most banks will list how much interest you've earned so far this year.
If you can't find your rate online or in the app, you can ask your bank directly. You can ask a bank’s chatbot, call the customer service line, or head into a local branch. Your rate may also be listed in any documents you received when you first opened your account.
How to find the interest rate on a new account
It's a good idea to compare interest rates when shopping for a new savings account. In this case, the best place to find the interest rate is likely the bank's website.
Some banks will have one page that compares all of their savings products. Other banks will have a dedicated page for each type of savings account.
Savings account interest rates can vary depending on your location. So, you may need to provide your ZIP code to see the potential interest rate on a new account.
Interest rate vs. APY
The interest rate on your savings account may be listed as an APY, rather than an interest rate. APY stands for "annual percentage yield." The APY is how much interest you can expect to earn over one year. An APY is based on two things: the interest rate and how often the interest is compounded.
Learn more: APR vs. Interest Rate
Savings account interest can be paid out daily, monthly, quarterly, or yearly. The amount of interest earned is calculated at the time it is paid out based on the total balance of your account. This includes both your initial deposit -- the principal -- plus any interest you've earned so far.
TIP
What is compound interest?
Compound interest is when you earn interest on both your principal and the interest you've already earned to date. How often an account pays interest is how often it compounds.
For example, a savings account with an interest rate that compounds monthly will pay you interest once a month. Each time the interest pays out, you earn income based on how much money you have in the account. So, you'll earn interest on all the money you have deposited, which includes the interest you already earned on your deposit last month, and the month before, and so on.
What is the average interest rate for a savings account?
According to the Federal Deposit Insurance Corporation (FDIC), the current average interest rate for savings accounts is 0.42%. Yes, less than a single percentage point. Believe it or not, that’s almost five times higher than it was a year ago.
What is a good interest rate on my savings account?
While the average rate is very low, the best savings accounts offer much higher interest rates. Thanks to recent Federal Reserve rate hikes, top-tier rates have skyrocketed. A good savings interest rate in today's market is 4% or higher. But an interest rate of 2% or more would still be considered competitive.
The type of bank and account you have will be the main factor in the interest rate you receive. For instance, online banks tend to offer higher interest rates. This is because online banks have lower overhead (the cost of running a business).
In some cases, how much money you deposit will influence your interest rate. Many banks offer higher-interest savings accounts that have large minimum deposit requirements. These accounts may also charge higher monthly fees, so be sure to check the fine print.
How to calculate savings account interest
It's one thing to know your savings account's interest rate, and another to turn that into a real dollar amount. That's because it's not as simple as multiplying your principal deposit by your interest rate. You have to take the compound interest into account.
Most savings accounts compound interest monthly. So, you need to calculate the interest based on the new balance each month. Here's an example of how much interest you could earn on a $10,000 deposit in one year, compounded monthly, with different interest rates:
| Interest Rate | Interest Earned |
|---|---|
| 0.1% | $10.00 |
| 0.5% | $50.11 |
| 1.0% | $100.46 |
| 1.5% | $151.04 |
| 3.0% | $304.16 |
| 5.0% | $511.62 |
Data source: Author's calculations.
You can find compound interest calculators for free online and in mobile app stores. Enter your principal, interest rate, and how often it compounds to see how much you'll earn over a given period of time. Compound interest calculators are a good way to see how a higher interest rate boosts your savings.
The Ascent's best savings accounts
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. The Ascent's top savings account picks can earn you more than 10x the national average savings account rate.
FAQs
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An easy way to find your savings account interest rate is through your online bank account.
Log in through a web browser or your bank's mobile app. Select the account you want and look for the "details" link or menu. (It may say "more details," or "account details," or something similar.) The interest rate should be listed in the account details.
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The amount of interest you'll earn on $1,000 in one year depends on the interest rate and how often it compounds. Most savings accounts compound monthly. Here's what that would look like with a few different interest rates:
- $1,000 at a rate of 0.1% would earn $1.00
- $1,000 at a rate of 0.5% would earn $5.01
- $1,000 at a rate of 1% would earn $10.05
- $1,000 at a rate of 1.5% would earn $15.10
- $1,000 at a rate of 5% would earn $51.16
You can use a compound interest calculator to explore different rates and compound schedules.
Our Banking Experts
Brittney started her writing career in the world of science, putting her physics degree to good use. Her journey into finance started with building her personal credit, but soon grew into a borderline obsession with credit cards and travel rewards. For the last 7 years, she has enjoyed the ability to share her expertise with readers, as well as the opportunity to interview companies and individuals making an impact on our financial lives. She wholly believe most problems can be solved with the right research -- and a good spreadsheet -- and she specializes in translating complex financial topics into actionable advice to help educate and empower readers.
Cole Tretheway is a full-time personal finance writer whose articles have been featured on The Ascent and The Motley Fool. He has a degree in English with a Certificate in Professional and Technical Communication from California Polytechnic University, SLO.
Fact Checked
Eric McWhinnie
Eric McWhinnie has been writing and editing digital content since 2010. He specializes in personal finance and investing. He also holds a bachelor’s degree in Finance.
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Brittney Myers has no position in any of the stocks mentioned. Cole Tretheway has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.