Why it’s still a good time to save: The average savings account interest rate remains high

The average savings account interest rate has been increasing steadily over the past couple of years. Here’s a closer look at today’s average savings account interest rates and why banks change their rates.

Average savings account interest rates 

Rates have consistently ticked upward this year. So far in 2024, the average savings account rate across all financial institutions is 0.46%, according to the Federal Deposit Insurance Corp. (FDIC).

That means if you put $10,000 into a savings account, you’d have an extra $47 after one year.

While this might not seem like much, it’s important to note that savings accounts are paying much more now than they were in years past. For example, the average savings account rate this time two years ago was just 0.06%.

But many banks are offering rates well above the national average. Some of the best rates can be found on high-yield savings accounts, which currently offer a 5% annual percentage yield (APY) and up.

These are a few institutions that regularly offer excellent APYs on high-yield savings accounts:

Banks set deposit rates—including savings accounts—based on a combination of market rates and competitor benchmarking, according to Ben Swinney, senior vice president and treasurer at Texas Security Bank. For example, he says, a key market rate that impacts the rates banks pay on deposits is the federal funds rate. 

“The Federal Funds Rate is the interest rate at which depository institutions, such as banks and credit unions, lend reserve balances to each other on an overnight basis,” Swinney says. He adds that this rate is determined by the Federal Open Market Committee (FOMC), a branch of the U.S. Federal Reserve, which meets eight times per year.

“Setting deposit account rates is a combination of art and science,” says Gene Grant II, CEO and founder of LevelField Financial Services. 

He explains that in an increasing interest rate environment, a bank generally won’t increase savings account rates in proportion with the increase in the Fed’s rate. 

“This is because the bank knows that in general, deposits are ‘sticky’ and only a marginal subset of customers will switch banks purely for deposit rates,” Grant says. “The bank performs a calculation to estimate the increase in deposit rate that will cost the bank the least for an acceptable amount of deposit outflow.” 

In a decreasing interest rate environment, the rates tend to come down much quicker, Grant notes.

Individual banks may also choose to raise or lower their savings account rates based on the amount of deposits they need to fund their loan portfolios. When banks need more deposits, they may increase interest rates to attract more customers. 

“A bank that is growing and making more loans will tend to increase deposit rates so that they have the funds to lend, and banks reducing the balance sheet tend to pay lower rates,” Grant says.

Banks also consider the spread between the interest they pay on deposits and the interest they earn on loans when setting savings account rates. To maintain profitability, they have to strike a balance between offering competitive rates to attract deposits and keeping their lending rates high enough to generate income. So at times, banks may adjust their savings account rates to improve profit margins.

Average savings account interest rates over time 

Over the past decade or so, savings account rates have remained relatively flat. Following the 2007–2008 financial crisis and Great Recession, the Fed slashed the federal funds rate to 0% in order to make borrowing more attractive and spur economic activity. 

Rates were at their lowest between 2013 and 2017, when the average savings account rate sat at 0.6%. Rates began ticking upward in 2018 as the economy continued to improve, only to be throttled once again by the COVID-19 pandemic and sharp (but short) recession that occurred as a result. By 2021, the average savings account rate dropped to 0.05%.

Things changed in March 2022, when the Fed began raising rates in response to skyrocketing inflation—a side effect of the Fed’s actions. Since then, the Fed has raised rates 11 times. As a result, savings account rates rose sharply. Today, the average savings account rate is 0.46%.

How to maximize the interest on your savings account

• Opt for a high-yield savings account. Not all savings accounts are alike. Despite the relatively low national average for interest rates, certain savings accounts pay much higher APYs. With a high-yield savings account, you can earn far above average and grow your savings faster.
• Consider a money market account (MMA). MMAs work like a checking-savings combo. They pay higher rates than the typical savings account, especially for higher balances. Plus, they often come with debit cards and check-writing capabilities. However, you may need to limit your withdrawals and/or maintain a minimum balance in order to avoid fees.
• Look out for bank bonuses. In addition to competitive interest rates, some banks also entice new customers by offering bonuses to those who sign up for an account. So if you’re in the market for a new savings account, shop around and find out if any banks are currently offering bonuses. Keep in mind, you may need to have the account open for a certain period of time before you’re eligible to receive the bonus.
• Consider an online bank. Online financial institutions tend to offer higher rates than banks and credit unions with brick-and-mortar locations. Why? Banks with physical locations typically have higher operating costs, so they typically provide lower rates. 
• Be sure your money is protected. Chasing high interest rates isn’t worth it if your money isn’t safe in the event of a bank failure. Always work with banks that are protected by the FDIC or credit unions backed by the National Credit Union Administration (NCUA). And always keep a maximum of $250,000 on deposit with any one financial institution so that your funds are fully protected.

The takeaway 

It’s important to understand that a savings account is best used for your emergency fund and short-term savings goals. Earning higher interest can help your savings grow even faster, and opting for high-yield accounts at FDIC- or NCUA-insured institutions will ensure that your money is safe.

That said, your savings account should be one component of a well-rounded financial plan. In addition to other safe harbor investments such as CDs and Treasurys, you’ll need to put your money in higher-risk (and higher-reward) market investments such as stocks, bonds, and mutual funds in order to grow your wealth and meet long-term savings goals such as retirement.