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Rates on various types of savings accounts are mixed compared to a week ago as the Federal Reserve hikes interest rates. In the market for an account where you can save for a rainy day or retirement? Here’s a look at the best savings rates you’ll find today.
Related: Compare the Best High-Yield Savings Accounts
Savings Rates Today: Traditional Savings Account
Traditional savings accounts, called “statement savings accounts” within the banking industry, have been known for paying teensy interest in recent years. That’s now changing, thanks to the Fed’s campaign of interest rate hikes to combat inflation.
Today’s highest interest rate on a standard savings account is 3.01%, according to data from Bankrate.com. If you score a basic savings account with a rate in that ballpark, you’ve found a good deal. One week ago, the best rate was 2.71%.
The national average rate is just 0.17%, according to the most recent data from the FDIC, the government agency that insures bank deposits. Today’s average APY for a traditional savings account is 0.59%, Bankrate says.
APY, or annual percentage rate, depicts the actual return your account will earn during one year. It factors in compound interest, which is the interest that builds up on the interest in your account.
Savings Rates Today: High-Yield Savings Account
High-yield savings accounts typically pay much higher interest than a conventional savings account. But the catch is you’ll have to meet tough requirements set by the bank or credit union. Often, that means making a large deposit to open the account.
On high-yield accounts requiring a minimum deposit of $10,000, today’s best interest rate is 2.96%. That’s unchanged from one week ago.
The average APY for those accounts is now 0.13% APY, the same as a week ago.
The current average is 0.31% APY for a high-yield account with a $25,000 minimum deposit. That’s the same as last week’s APY.
Savings Rates Today: Money Market Account (MMA)
Money market accounts are savings accounts that mix in some of the features of checking accounts. Typically, you can write checks and have some debit card privileges.
MMAs tend to pay somewhat higher interest than a standard savings account. The FDIC says the average MMA rate is 0.18%, versus 0.17% for a traditional savings account.
But today, the best money market accounts have rates as high as 2.23%. That’s steady with the top rate of 2.23% from one week ago.
The average APY for an MMA is now 0.20%, up from 0.17% last week at this time, according to Bankrate.
How Often Do Savings Account Interest Rates Change?
Interest rates on savings accounts typically are variable, meaning they can go up or down as other rates change throughout the economy. Savings rates are often influenced by the Federal Reserve’s rate moves, and the central bank in recent months has been pushing up its benchmark federal funds rate to try to get inflation under control.
But while financial institutions are usually quick to boost credit card rates and other borrowing costs as the Fed raises rates, they tend to take their time with increasing the interest paid to savers. Rates on savings accounts have been rising slowly, and that’s likely to continue throughout 2022 and in 2023 as the Fed remains active.
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- Money
- What Is the Average Interest Rate for Savings Accounts?
Average savings account interest rates at brick-and-mortar banks is historically low as of late-2021 – but shopping around can help you find higher rates.
By Frances Coppola | American Express Credit Intel Freelance Contributor
4 Min Read | February 1, 2022 in Money
At-A-Glance
Savings account interest rates are tied to economic conditions and the U.S. central bank’s policy decisions.
After moving up and down through a comparatively wide range historically, average savings account interest rates have settled close to zero since the 2008 recession and appear likely to remain there.
It’s still possible to find higher rates, usually at online banks.
Average Savings Account Interest Rates
On December 20, 2021, the FDIC reported that the national average interest rate on bank savings accounts was 0.06% APY, regardless of the size of the deposit. If you’re able to tie your money up for a period of time, you can get better interest rates: On that same day the average interest rate on a five-year CD was 0.28% APY1 – nearly 5 times higher. Because these rates are averages, you might not find a savings account or CD with exactly that rate. But it gives an idea of the sort of rates you can expect from brick-and-mortar banks.
What Determines Average Interest Rates?
Interest rates on bank savings accounts and CDs depend in part on the U.S. Federal Reserve’s interest rate decisions. When the federal funds rate – the key policy interest rate set by the Fed – rises, interest rates on bank savings accounts usually rise as well. Similarly, when the federal funds rate falls, so do the interest rates on bank savings accounts. Sometimes savings interest rates change in advance of Fed rate decisions, if the Fed is signaling they may move rates in a particular direction. If you want to anticipate the likely future direction of interest rate changes on your bank saving accounts, it’s worth keeping an eye on Fed announcements.
For example, in the early 1980s, the federal funds rate soared and interest rates soon followed, with the average rate on a five-year CD peaking at nearly 12% in 1984.2,3 Since then, the Fed’s policy rate has gradually fallen, and so too have interest rates on savings. In the 1990s, average rates were around 4–5%, and after the early 2000s recession they fell to 1–2%. After the 2008 financial crisis, the Fed cut the federal funds rate to 0.25%, and average interest rates on bank savings fell to nearly zero.
In mid-2020, the Fed cut the federal funds rate to zero and said it intends to keep it there through at least 2023.4 Very low interest rates on bank savings may be the norm for the foreseeable future.
Why Should You Have a Savings Account?
Even with interest rates expected to remain low for some time to come, there are several reasons why regularly putting money into a savings account is still worthwhile:
- You might want to build up some “rainy day” savings to help you weather sudden drops in your household income.
- You can save up for big purchases such as a new car, home furnishings, or a dream vacation.
- You can put aside money in an emergency fund to cover unexpected expenses such as household repairs or medical bills.
Can You Find Higher Interest Rates?
If these low APYs don’t meet your needs, it might be worth considering a high-yield savings account. Many online banks have savings accounts with significantly higher yields than those available at brick-and-mortar banks.
However, high-yield accounts aren’t immune to Fed interest rate changes. In August 2020, interest rates on online savings accounts were typically around 1% APY, but following the Fed’s announcement that its policy rate would remain at zero through 2023, online banks trimmed their interest rates. By January 2022, online banks were typically offering interest rates of around 0.5% APY on high yield savings accounts.
Just as with traditional bank savings accounts, it’s worth shopping around for high yield savings accounts that pay more than average. As little as 0.05% over the typical APY can make a difference to your earned interest over time.
The Takeaway
Average interest rates on bank savings accounts and CDs are close to zero and seem likely to stay there for some time to come. Savings accounts at online banks can be a good option for digital-savvy savers, since they typically offer higher interest rates than traditional banks. But whether you choose to save in traditional banks or higher-yielding online savings accounts, it’s worth shopping around to see whether you can find an interest rate that beats the average.
Frances Coppola spent 17 years in the financial services industry before becoming a noted writer and speaker on banking, finance, and economics. Her work appears in the Financial Times, Forbes, and a range of other publications.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
What Is an Interest Rate?
Interest is the amount of money a lender charges you to borrow, and interest rates are how they calculate how much to charge. Learn more about interest rates and what determines them.
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