What a savings account earns depends on the interest rate, how much you have saved, and how long the money sits there

A savings account earns money through interest—a percentage of your balance that the bank pays you for letting them use your money. The amount you earn is calculated by multiplying your account balance by the annual interest rate, then dividing by 12 if you want the monthly amount. If you have $5,000 in an account earning 4.5% annually, you earn roughly $18.75 per month, or $225 per year.

The catch is that interest rates change constantly and vary widely between banks. A savings account at a large national bank might earn 0.01% annually, while an online bank might offer 4.5% or higher. That same $5,000 earning 0.01% would make you about 50 cents per year. The difference between a low-rate account and a high-rate account on the same balance can be hundreds of dollars annually.

Interest also compounds, meaning you earn interest on your interest. If your account compounds daily or monthly, the money grows slightly faster than simple math suggests. Most savings accounts compound daily, so the exact amount you earn depends on the specific terms of your account.

Key Takeaways

  • Your earnings equal your balance multiplied by the annual interest rate—a $10,000 balance at 4% earns $400 per year before compounding.
  • Interest rates vary from under 0.01% at large national banks to 4.5% or higher at online banks and credit unions, creating differences of hundreds of dollars on the same balance.
  • Compounding means you earn interest on interest, so your actual earnings are slightly higher than a simple calculation suggests.
  • The longer money stays in the account, the more interest it earns, but you can withdraw it anytime without penalty in a standard savings account.

How to calculate what you'll earn

The basic formula is: Balance × Annual Interest Rate ÷ 12 = Monthly Earnings. If you have $20,000 at 3.5% annual interest, you earn roughly $58 per month. To find your yearly total, multiply the monthly amount by 12, or simply multiply your balance by the rate: $20,000 × 0.035 = $700 per year.

This calculation assumes the balance stays the same all year. In reality, if you add money each month, your earnings grow because you're earning interest on a larger balance. If you withdraw money, your earnings shrink. Most banks show you the exact amount earned in your monthly statement, so you don't have to calculate it yourself—but knowing the math helps you compare accounts before you open one.

Compounding changes the math slightly. With daily compounding, the bank calculates interest each day on your current balance, then adds that tiny amount back to your account. The next day, you earn interest on the slightly larger balance. Over a year, this compounds into earnings that are a bit higher than the simple formula suggests. The difference is small on most balances, but it adds up over time.

Why rates differ so much between banks

Large national banks often offer savings rates near 0.01% because they have many ways to make money—they charge fees, offer credit cards, and make loans. They don't need to pay you much to keep your money there. Online banks have lower overhead costs and fewer services, so they can afford to pay higher rates to attract deposits. Credit unions, which are member-owned, sometimes offer competitive rates as a benefit to members.

The Federal Reserve's interest rate decisions also affect what banks pay. When the Fed raises its benchmark rate, banks gradually raise savings rates. When the Fed cuts rates, savings rates fall. This means the rate you see today may not be the rate you earn six months from now.

Some accounts offer promotional rates for new customers—a higher rate for the first few months, then a drop to a standard rate. Read the fine print to see when the promotional period ends and what the regular rate will be.

How much you need to earn meaningful money

At current rates, earning $100 per month requires a balance of roughly $27,000 to $35,000, depending on whether you're at a 3.5% or 4.5% account. Earning $1,000 per year requires a balance of about $22,000 to $29,000. These numbers shift when interest rates change, so there's no fixed threshold—but the point is that savings accounts earn modest amounts unless your balance is substantial.

This is why savings accounts work best for money you need to keep safe and accessible—an emergency fund, a down payment you're saving for, or money set aside for a known expense. If you have a large balance and want earnings to be a meaningful part of your financial picture, you might explore other options like certificates of deposit (CDs), which lock your money away for a set time but often pay higher rates.

What happens to your earnings over time

The longer money sits in a savings account, the more interest it earns. A $10,000 balance earning 4% grows to $10,400 after one year, $10,816 after two years (because you earn interest on the interest), and $14,802 after ten years. The growth accelerates over decades, which is why starting early matters even with modest amounts.

However, inflation eats into these gains. If your account earns 4% but inflation is 3%, your money's real purchasing power only grows 1% per year. This is why it's worth shopping for the highest rate available—even a 1% difference compounds into real money over years.

Where to find current rates

Websites like Bankrate, DepositAccounts, and NerdWallet list savings rates from dozens of banks and update them regularly. You can compare rates side by side and see which banks offer the highest returns. Most online banks allow you to open an account in minutes and start earning immediately. Some require a minimum deposit—often $0 to $25,000 depending on the bank—so check before you apply.

When you find an account with a rate you like, read the terms carefully. Look for whether the rate is fixed or variable, when promotional rates end, whether there are monthly fees, and how many withdrawals you can make per month without penalty. A high rate doesn't matter if fees eat into your earnings.

Frequently Asked Questions

Do I have to pay taxes on savings account interest?

Yes. Interest earned is taxable income. Banks send you a 1099-INT form if you earn $10 or more in interest during the year, and you report it on your tax return. The amount is usually small, but it's still income the IRS wants to know about.

Can the interest rate change after I open the account?

Yes. Savings account rates are variable, meaning the bank can raise or lower them anytime. Some banks lower rates when the Fed cuts rates, and raise them when the Fed raises rates. You can move your money to a different bank if the rate drops and you find a better option elsewhere.

What's the difference between a savings account and a money market account?

Money market accounts often pay slightly higher interest than savings accounts, but they usually require a larger minimum balance and limit how many withdrawals you can make per month. Both are safe and insured by the FDIC up to $250,000, so the choice depends on whether you need frequent access to the money.

Is it worth moving my money to a higher-rate account?

If your current account earns 0.01% and you can find one earning 4.5%, the difference on a $10,000 balance is about $450 per year. Moving takes 10 minutes online. The only reason not to move is if you have a specific reason to stay—like a checking account at the same bank that offers benefits.

What if I add money to my savings account each month?

Your earnings grow because you're earning interest on a larger balance each month. If you add $500 monthly to an account earning 4%, you'll earn more than someone with a flat $5,000 balance. The exact amount depends on when during the month you deposit the money and how the bank calculates interest.