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According to FDIC data, the average interest rate on a savings account has risen steadily in 2023, increasing from 0.33% annual interest in January to 0.46% annual interest as of Nov. 20, 2023. If you put $10,000 away at the current average savings interest rate of 0.46%, it would grow to $10,000 in a year's time.
Average interest rate on regular savings accounts
APY Comparison
When choosing a savings account, compare APYs (high annual percentage yields). The more frequently interest is compounded, the more frequently you earn interest on your interest, which will grow your balance. APY takes into account the compounding schedule, making it the most accurate way to compare how much you'll earn in different accounts. If you're considering an account that pays a 2.50% APY and another that offers a 2.40% APY, you can be sure the first account with the higher APY will earn you more. In addition to the APY, look at any minimum or maximum balance requirements. Some accounts may earn the stated APY on only a portion of your balance, while others may require you to maintain a minimum balance to earn the APY.
Interest rates for current and ordinary savings accounts
Some banks offer linking checking and savings accounts to make transferring money easier. These accounts may earn interest on both the checking and savings accounts, or only on the savings account. Either way, the savings account has a higher APY, so it's best to leave most of your balance in a savings account if you don't need it for payments. Some large banks offer additional relationship perks, such as higher interest rates, to customers who open and link both their checking and savings accounts. Relationship rates may also be contingent on you having a mortgage or investment account with the institution.
What influences your savings rate?
At each FOMC meeting, the Federal Reserve sets the federal funds rate, which banks use to borrow money from each other overnight to maintain reserves. Changes in this rate have a cascading effect on the financial sector, causing consumers to increase or decrease their savings rates. While Federal Reserve policy affects the average savings rate, individual banks and credit unions determine their interest rates based on many other factors. The Federal Reserve began raising interest rates in March 2022 in response to high inflation. After a year and a half of rate hikes from 0.00% to 5.25%, the Consumer Price Index cooled and the Federal Reserve decided to keep interest rates unchanged in the September 2023 session. Savings rates have also risen due to the Federal Reserve's interest rate increase, but many traditional banks have kept their interest rates unchanged. Online banks and credit unions are more likely to offer competitive interest rates that keep up with the Federal Reserve's interest rate hikes.
What interest rate is good for a savings account?
A good savings account interest rate is usually several times higher than the national average savings rate. As of November 2023, the average savings rate published by the FDIC is 0.46%, so a good interest rate will be 1.00% or higher. And since many of the best savings accounts offer 4.50% to 5.00% annual interest, it is possible to find an interest rate 10 times higher. In contrast, some large national banks peg savings rates at 0.01% annual interest. The FDIC sets a national interest rate cap, and few savings account rates exceed it. This maximum interest rate is more than 12 times the average savings rate.
How to get the best savings rate
Use these tips to help your money go further while you save: Look into savings accounts with financial institutions other than your current bank Online-only banks may have higher interest rates, but consider major banks that are running promotions If you want higher interest rates and would prefer to bank at a local branch, consider an NCUA-insured credit union Look for fee-free accounts to keep your savings growing Be realistic about the balance you plan to maintain to avoid unnecessary fees that some banks charge if you fall below the minimum balance Make sure you can live with the number of withdrawals you can make in a month from your account.
Savings Account Alternatives
While savings accounts offer easy access to funds you've set aside for later use, it's worth considering alternatives like interest-bearing checking accounts, certificates of deposit (CDs), and money market accounts (MMAs).
Regular deposit and current account interest rates
A standard checking account doesn't earn interest, but an interest-bearing checking account earns you a small amount of interest based on the balance you carry. A savings account is likely to offer a higher interest rate, but a checking account may allow for more frequent withdrawals and may also come with a debit card and check-writing capabilities.
Savings and CD interest rates
CDs are another FDIC-insured way to earn interest on your savings, and they tend to have much higher interest rates. Depending on how long you need the money, you can earn three to four times more interest, on average, by putting it in a CD instead of a savings account. CDs pay a fixed interest rate for the term of the CD, unlike the variable interest rates of savings accounts. Keep in mind that CDs usually have penalties if you withdraw your cash before maturity, and you should find out in advance what happens when your CD matures. Some CDs automatically roll over into a new CD, while others simply stop earning interest.
Savings rate and MMA
Money market accounts are a cross between savings and checking accounts. The average interest rate on an MMA is a bit higher than that of a standard savings account, but like checking accounts, these accounts usually offer ATM cards and check-writing features. However, MMAs tend to have higher minimum deposit and balance requirements.