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:
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:
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*:
- Regular savings accounts: 0.01% to 0.25%
- Online savings accounts: 0.75% to 1.00%
- Money market accounts: 0.04% to 0.10%
- 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:
|$0 – $24,999.99||0.01%|
|$25,000 – $99,999.99||0.10%|
|$100,000 or more||0.15%|
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.
*ValuePenguin is an affiliate of LendingTree, Student Loan Hero’s parent company.
Interested in a personal loan?Here are the top personal loan lenders of 2019!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.74% – 16.99%1||$5,000 - $100,000|
|7.54% – 35.99%||$1,000 - $50,000|
|7.99% – 35.89%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|5.99% – 29.99%3||$7,500 - $40,000|
|6.79% – 20.89%4||$5,000 - $50,000|
|9.99% – 35.99%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
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 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% 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 March 18, 2019, 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 0318/2019. 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 email@example.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.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for LendKey.
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.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.69% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|