A good interest rate depends on what you're saving or borrowing for, and what the market is offering right now

There is no single "good" interest rate that works for every account or every person. A rate that is excellent for a savings account might be ordinary for a CD. A rate that was competitive six months ago may be below average today. What matters is comparing the rate you're being offered to three things: what other banks are offering for the same product, what the Federal Reserve's current benchmark rate is, and what your own goals are.

The easiest way to check if a rate is good is to spend five minutes on a rate-comparison site like Bankrate, DepositAccounts, or your bank's own website. Look at what five or six other banks are offering for the exact same product — a high-yield savings account, a 12-month CD, a money market account. If your rate is within 0.10% of the highest ones listed, you're in a competitive range. If it's 0.25% or more below, you're leaving money on the table.

Key Takeaways

  • Compare your rate to what at least five other banks are offering for the same product type, because rates vary widely even for identical accounts.
  • High-yield savings accounts and money market accounts typically offer higher rates than traditional savings accounts, but require you to keep money accessible.
  • CDs lock your money away for a set time, so their rates are usually higher than savings accounts, but you pay a penalty if you withdraw early.
  • The Federal Reserve's benchmark rate (the federal funds rate) moves up and down, and banks adjust their savings rates in response, usually within weeks.
  • Online banks almost always offer higher rates than brick-and-mortar banks because they have lower overhead costs.

How the Federal Reserve's rate affects what banks offer you

The Federal Reserve sets a benchmark rate called the federal funds rate, which is the interest rate banks charge each other for overnight loans. This rate does not directly set what you earn on savings, but it strongly influences it. When the Fed raises its rate, banks have more incentive to offer higher rates on savings accounts to attract deposits. When the Fed lowers its rate, savings rates typically fall within weeks or months.

You can find the current federal funds rate on the Federal Reserve's website. Knowing where it sits helps you understand whether banks are passing rate increases to savers or keeping the gains for themselves. If the Fed has raised rates but your bank has not raised your savings rate in three months, that's a sign to shop around.

Why online banks almost always beat brick-and-mortar rates

Online banks offer higher interest rates than traditional banks because they do not pay for physical branches, tellers, or as much staff. That cost savings gets passed to you as a higher rate. A traditional bank might offer 0.01% on a savings account; an online bank might offer 4.50% on the same type of account. The difference is real and compounds over time.

The trade-off is that you cannot walk into a branch to deposit cash or speak to someone in person. Most online banks let you deposit checks by phone camera and transfer money electronically. If you need to deposit cash regularly, you may need to keep a small account at a local bank or use a credit union with shared branching.

Savings accounts versus CDs versus money market accounts

Different account types come with different rate expectations. A high-yield savings account typically offers 4% to 5% right now, but the rate can change at any time — the bank can lower it without penalty to you. A CD (certificate of deposit) locks in a fixed rate for a set term (3 months, 6 months, 1 year, 5 years), so the rate you see is the rate you keep, but you cannot touch the money without paying an early withdrawal penalty. A money market account usually offers a rate between savings and CDs, with limited check-writing or transfer privileges.

For money you need within the next year, a high-yield savings account or a short-term CD makes sense. For money you will not need for several years, a longer CD usually offers a higher rate. The longer you lock money away, the more the bank pays you for that certainty.

What to do if your current bank's rate is below average

If you have been with the same bank for years and have not checked your savings rate recently, there is a good chance it is outdated. Banks often keep rates low for existing customers while offering higher rates to new account holders. You have two options: ask your bank to match a competitor's rate, or move your money.

Moving money is easier than it sounds. Open a new account at a higher-rate bank, then use an ACH transfer (electronic transfer) to move your balance over. This takes three to five business days and costs nothing. Your old account will close automatically once the balance hits zero, or you can close it yourself. There is no penalty for switching banks, and doing it once every year or two as rates change is normal.

Rate comparison tools and where to find current rates

Bankrate, DepositAccounts, and NerdWallet all list current rates from dozens of banks, updated daily. You can filter by account type (savings, CD, money market), term length (for CDs), and minimum deposit. These sites do not sell your information or charge you — banks pay them a small referral fee if you open an account through their link.

Your own bank's website will also show you what it is offering new customers. Compare that to what it is paying you on your existing account. If there is a gap of 0.25% or more, call and ask if they will match the new-customer rate for you. Many banks will, especially if you have been a customer for several years.

How inflation affects whether a rate is actually good

A 4% savings rate sounds good until you remember that inflation is running at 2% to 3%. That means your real return — the amount your money actually grows in purchasing power — is closer to 1% to 2%. This is still better than keeping cash in a checking account earning nothing, but it is worth understanding. If inflation rises and banks do not raise rates in response, your real return shrinks.

This is one reason longer CDs can be worth considering: they lock in a rate that protects you if rates fall later. But it also means you should not leave money in a low-rate account waiting for rates to rise. If rates are good now, move your money now.

Frequently Asked Questions

Is 4% a good savings rate right now?

Yes, 4% to 5% is competitive for high-yield savings accounts as of early 2024. Check Bankrate or DepositAccounts to see what the top-paying banks are offering, and compare your bank's rate to that range. If you are earning less than 3.5%, you are likely below market.

Should I lock in a CD rate or wait to see if rates go higher?

If rates are at a level you are comfortable with and you do not need the money for the CD's term, locking in makes sense. Rates could fall, and you would regret waiting. If you think rates will rise significantly, a shorter CD (3 or 6 months) lets you reinvest at a higher rate sooner without as much penalty.

Why does my bank offer new customers a higher rate than I am getting?

Banks use higher rates as a marketing tool to attract new deposits. Once you are a customer, they lower your rate gradually, counting on inertia to keep you from switching. This is why checking your rate annually and shopping around is important.

Do I need to worry about the bank failing if I move to a smaller online bank?

No. As long as the bank is FDIC-insured (which all legitimate banks are), your deposits are protected up to $250,000 per account type. Check the bank's website or the FDIC's bank search tool to confirm coverage before you move money.