4 Min Read | Updated: December 15, 2023

Originally Published: February 1, 2022

What Is the Average Interest Rate for Savings Accounts?

The average interest rate for a savings account will vary, depending on the type of account and other factors. Shopping around could help you to find the best deal.

This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

At-A-Glance

Savings account interest rates are tied to economic conditions and the U.S. central bank’s policy decisions.

Average savings account interest rates have settled near 0.42%, (August 2023) according to the Federal Deposit Insurance Corporation (FDIC).1

However, it’s possible to find higher rates, usually at online banks or with high-yield savings accounts. 


While interest rates for savings accounts are continually fluctuating, today, average savings account interest rates have settled near 0.42%.2 While this may not seem like much, it is an improvement, considering where savings account rates have been.

 

In 2021, the average savings account rate had dropped to 0.5%.3 However, they have been rapidly climbing since last year.4 This increase could mean that many savers could finally start to get a better return.

 

In this article, we’ll unpack how savings account interest rates work, and highlight steps you can take to get the best return on your savings.

How Do Savings Account Interest Rates Work?

Every week, the Federal Deposit Insurance Corporation (FDIC) reports the national average interest rates on savings accounts and certificates of deposit (CDs). That’s the average of the interest rates paid by traditional brick-and-mortar banks.

 

With some careful shopping around, though, you can find accounts that offer higher rates of interest. For instance, online banks and high-yield savings accounts tend to offer much higher rates.

 

But in order to compare interest rates across different types of accounts and financial institutions, you need to know some basics about interest rates, including these common terms:

 

  • Annual percentage rate (APR): Represents the yearly rate that’s charged for borrowing money, including fees, but not compounding.5
  • Annual percentage yield (APY): The real rate of return earned on an investment.6
  • Compound interest: Compound interest is interest calculated on the sum of the initial amount of either an investment or a loan plus any interest already accumulated.

Average Savings Account Interest Rates

As of August 21, 2023, the national average interest rate on bank savings accounts was 0.43%.7 On that same day the average interest rate on a five-year CD was 1.41%8 – much 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.

 

If you’re going to tie your money up for a certain period of time, you’ll want to ensure that you’re getting the best interest rates possible.

What Determines Interest Rates in Savings Accounts?

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 1984.9,10 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.

 

As you can see, interest rates are always changing, which is why keeping up with the fluctuations can be a good way to ensure that you’re getting the best return possible on your savings.

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.
  • The liquidity that savings accounts offer is something that many people can appreciate. Being able to access your money when you need it offers tremendous flexibility.

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 also 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. Evan a fluctuation that’s as little as 0.05% over the typical APY can make a difference to your earned interest over time, depending on the size of your savings.


The Takeaway

Average interest rates for savings accounts are at .42% (Aug 2023). However, for savers who would like to earn more on their savings, looking for a high-yield savings account that meets their needs could be a good alternative. As always, it’s worth shopping around to see whether you can find an interest rate that beats the average.


Frances Coppola

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. 

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