The Ultimate Guide to Savings Account Interest (When You’re Not a Math Whiz)

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

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One advantage to saving money with a bank is that it can grow faster there than it can under your mattress. How much faster exactly?

It’s a legitimate question if you have a savings account earning a nickel or dime per month in interest. It’s also why your account’s annual percentage yield (APY) is so important. A low APY means your savings grow at a snail-like pace.

Here’s how savings account interest works and how it’s affected by other savings account types. This guide might even help you make more money on your money.

How does savings account interest work?

Although you might be more familiar with the term annual percentage rate (APR) thanks to your student loans and credit card, APY is what you’re looking for in a savings account. You’ll see banks advertising this figure alongside their account offerings.

Banks offer interest to entice customers to open new accounts and grow their money over time. You’ll get a better interest rate if you’re storing a large amount of money for good keeping — and a worse interest rate if you have a lower balance from which you often make withdrawals.

These days, a 1.00% APY on a savings account is a competitive rate. Most consumers earn a fraction of that amount on their savings.

If you have a legacy savings account at Bank of America, for example, you might only earn 0.01% APY on your money. Based on your balance, that could translate to about a nickel per month.

Savings accounts like this are more about storing your money than growing it. This is because lower APYs mean more modest returns.

Consider, for example, you contribute $100 per month to your existing $10,000 savings account for the next year. Here’s how much interest you would earn in that time:

  • 0.01% APY: $1 of interest
  • 0.50% APY: $53 of interest
  • 1.00% APY: $106 of interest

Where a savings account can become more rewarding is when your interest earns interest. This is called compound interest and APY — unlike APR — accounts for it.

If your account compounds monthly, you’ll earn interest on your new account total, which includes the previous month’s interest. It’s easier to understand this concept by using a free compound interest calculator.

Here’s one example in which you’d contribute $500 monthly to a $10,000 account for 10 years:

Calculating savings account interest

Image credit: The Calculator Site

Monthly compounding allowed this account to grow by more than $3,000 in 10 years. It’s important to know how often your savings account compounds interest, whether it’s daily, monthly, or quarterly. The more often, the better it is for you.

What affects interest rates on savings accounts?

The federal funds rate (FFR) helps determine what kind of rate you could secure at a bank. When the FFR is high, it’s good news for savers because banks might be willing to pay higher yields on customers’ savings.

When you become a bank’s customer, you agree to a set of terms. You know your savings account interest rate and whether it’s fixed or variable. You also know how often interest will be deposited into your account.

There’s some wisdom behind chasing the highest APY available. But the higher the yield, the more requirements you might encounter to open and maintain your savings account.

Requirements could include a minimum opening deposit and maintaining a minimum daily or monthly balance. On the positive side, some banks have a tiered yield structure, increasing your APY after your account surpasses milestone values like $25,000 or $50,000.

That said, your interest rate on savings accounts is somewhat dependent on the type of account you open.

Interest rates for 4 types of savings accounts

Like the APR of a student loan, the APY of a savings account is just one factor to consider. You’ll want to compare rates by shopping around or by checking out our banking marketplace.

Here are the typical ranges of interest rates on savings accounts, according to consumer research firm ValuePenguin:

  1. Regular savings accounts: 0.01% to 0.25%
  2. Online savings accounts: 0.75% to 1.00%
  3. Money market accounts: 0.04% to 0.10%
  4. Certificates of deposit (CDs): 0.01% to 1.65%

You’ll also want to examine the uses of the account itself. As much as the rate might attract your attention, the other details matter.

1. Regular savings accounts

The products of big banks, community banks, and credit unions aren’t created equal. At Bank of America, for example, you gain the convenience of ATMs throughout the country but give up significant savings account interest.

At a local bank or a credit union, you’ll likely score a higher APY but perhaps give up the ability to house all your accounts in one place. It’s important to ask which kind of institution is right for you.

Within each of these banks, there are differences in savings account interest rates. With an HSBC Premier Savings account, for example, your yield is tiered by account balance:

Balance APY
$0 – $24,999.99 0.01%
$25,000 – $99,999.99 0.10%
$100,000 or more 0.15%

2. Online savings accounts

If giving up in-person customer service is not a big deal to you, opening an online savings account with a reputable bank could be a no-brainer. That’s because their APY offerings are almost always higher than banks that have brick-and-mortar branches.

Online banks are able to offer higher APYs because they have fewer expenses. They don’t have full-time tellers welcoming you into a physical building, for example.

The online-only bank Barclays, for example, comes with a savings account interest rate of 1.20%. Lacking ATM service, it does allow customers to transfer money to and from other banks.

3. Money market accounts

Although you can open a bank account at a branch or online without making a deposit or maintaining a minimum balance, money market accounts are suited for savers with more money on hand.

Often requiring a higher minimum balance than savings accounts, money market accounts can come with more fees that could cut into your interest dividends. Dropping below $1,000, for example, could lead you to pay a $10 monthly fee.

All in all, the yields of money market accounts are generally higher than those of regular savings accounts.

Say you throw $5,000 in a money market account with a 0.10% APY, and you also stash $5,000 in a BofA account with a 0.01% APY. In two years, the money market account would gain $10 in interest, and the regular savings account would grow by just $1.

But because the money isn’t locked away, your money won’t grow as fast as it would sitting in a CD.

4. Certificates of deposit

The most unique of these four accounts, a certificate of deposit (CD) account forces you to stow away your money for a predetermined period. You might agree to a fixed APY beforehand or tie your interest rate to the market.

Either way, this fact holds true: The more money you leave with your bank — and the longer you leave it there — the higher APY you can expect.

In exchange, you give up access to your money. In fact, there are penalties for early withdrawals, making CDs a good option if you don’t need to touch your money for a while. Most CDs start at three months and can go up to six or more years in length.

There’s also a benefit of opening your CD with a credit union, where the average five-year APY (1.34%) bested that of banks (1.15%), according to SNL Financial.

Consider savings account interest rates in context

Savings account interest is one factor to consider when working with your bank, but it’s not the only factor. You wouldn’t want to hamstring your finances, for example, by stashing money in one account just to be able to secure a slightly higher APY.

Consider all aspects of an account before opening one. For example, even if one bank offers a higher APY than another, its branches might not be conveniently located for you. Or maybe it has higher fees if your balance drops below a certain amount.

Get a feel for what matters to you beyond the interest rate. That will help you pick a savings account.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on ourstudent loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 3.899% APR to 8.179% APR (with AutoPay). Variable rates from 2.570% APR to 6.980% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. SoFi rate ranges are current as of September 14, 2018 and are subject to change without notice. See APR examples and terms. Lowest variable rate of 2.570% APR assumes the current index rate derived from the 1-month LIBOR of 2.08% plus 0.740% margin minus 0.25% AutoPay discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
  2. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.57%-8.17% (2.57%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.75%-8.69% (3.75%-8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Estimated average savings amount is based on 14,659 Education Refinance Loan customers who saved on loans between August 1, 2017 and July 31, 2018. The calculation is derived by averaging monthly savings across Education Refinance Loan customers whose payment amounts decreased after refinancing, calculated by taking the monthly payment prior to refinancing minus the monthly payment after refinancing. We excluded monthly savings from customers that exceeded $4,375 and were lower than $20 to minimize risk of data error skewing the savings amounts. Savings will vary based on interest rates, balances and remaining repayment term of loans to be refinanced. Borrower’s overall repayment amount may be higher than the loans they are refinancing even if monthly payments are lower.

2.57% – 6.98%3Undergrad
& Graduate
Visit SoFi
2.47% – 5.87%1Undergrad
& Graduate
Visit Earnest
2.47% – 8.03%4Undergrad
& Graduate
Visit Lendkey
2.80% – 6.22%2Undergrad
& Graduate
Visit Laurel Road
2.48% – 6.25%5Undergrad
& Graduate
Visit CommonBond
2.57% – 8.17%6Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.