Average savings account rates can vary based on the rates the Federal Reserve sets, as well as the bank or credit union you start your account. In comparing a variety of savings accounts, we identified where you can maximize your interest earnings with above-average rates.
Average Savings Account Interest Rates
The average rate for a savings account rises and falls over time. For example, in October 2022, the average savings account interest rate was 0.21%. The month before, the average rate was 0.17%. One year before, the average was 0.06%. What causes rates to rise and fall? As banks raise and lower their interest rates based on changes in federal rates, savings accounts follow. But even in times when savings rates are low—say, below 0.20%—you can usually find savings accounts with higher rates. The best savings accounts rates are well above average, with some going as high as 3.60% APY in October 2022, for example. Below are a few examples of rates from banks at that time:
Bask Bank: 3.60%DollarSavingsDirect: 3.50%Synchrony: 2.75%Bank of America: 0.01% to 0.04%Wells Fargo: 0.01% to 0.02%Chase: 0.01%
How Savings Account APY Works
While interest rate and APY are commonly used interchangeably, the two rates are different. The interest rate is the amount the bank has decided to pay on deposits. The APY—annual percentage yield—represents how much you’ll actually earn on your deposits in one year based on how often interest compounds.The higher the APY, the more interest you’ll earn on your savings. Let’s say you’ve just received a $10,000 bonus at work and you’re considering two savings accounts. One offers 0.02% APY and the other offers 2.00% APY, and both compound monthly. After one year, the 0.02% account will have earned you $2, while the 2% account will earn you $202. Most banks advertise APY, but if you happen to have the interest rate instead, you can calculate APY with this formula: 100 [(1 + Interest/Balance)(365/Days in term) − 1]
Types of Savings Accounts With the Best Interest Rates
The average savings account interest rate is a good basis for comparison, but you can typically find banks offering more competitive rates once you know the types of accounts to look for.
High-Yield Savings Accounts
High-yield savings accounts, or “HYSAs,” offer higher-than-average rates and typically have no fees. Some HYSAs are easily accessible with no deposit requirements. Others require a minimum deposit to open an account and a minimum balance to receive the best rates. HYSAs are often found at online banks, which have lower operating costs compared to traditional brick-and-mortar banks.
Online Savings Accounts
Online savings accounts are offered by banks that operate exclusively online. These interest rates are among the highest available and accounts typically come with no fees. While some online banks operate under a bank with physical locations, they don’t have a physical presence. That means you can’t visit a branch to open an account, deposit cash, or speak to someone face-to-face.
Relationship Savings Accounts
Some traditional brick-and-mortar banks offer higher savings account rates for customers who own at least one other account. These rates tend to be lower than rates from an online bank, but a relationship savings account may appeal to consumers who prefer access to physical bank branches. In that case, opting for an account that offers a relationship bonus will give you a slightly better return.
Historical Savings Account Interest Rates
Paying attention to the economic news and trends can give you an idea of where savings account rates are headed and where to park your extra cash. When the Federal Reserve raises interest rates, the average savings account interest rate shortly follows, although it usually doesn’t rise symmetrically with the Fed rate. For instance, the average savings account rate rose 0.11 percentage September 2021 to September 2022, increasing from 0.06% to 0.17%. By comparison, the effective federal funds target rate rose nearly 2.5 percentage points from February to September 2022.Of course, the opposite is also true. When the Fed cuts interest rates, savings account rates drop, too. Even rates for HYSAs dropped to well below 1% when federal rates were near zero in early 2022.
