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💡 Key idea:
Key takeaways
- Most major banks – including Chase, Bank of America and Wells Fargo – pay almost nothing on savings, with many customers unaware of how much extra they could earn elsewhere.
- Your savings are completely safe at small banks or online, thanks to Federal Deposit Insurance that protects balances up to $250,000.
- Opening a high-yield savings account usually takes just minutes online, making it easy to stop accepting low interest rates.
How do the big banks keep their savings rates so low?
Banks are known to pay interest on savings accounts. They do this because they want you to deposit your money with them and keep it there, allowing the bank to issue loans with those deposits to earn profits. What is less understood is how dismal the payouts of the largest banks are. Research shows that most account holders have no idea what rate they are earning, and the big banks take advantage of this by paying them peanuts.
The nation’s three largest banks — Chase, Bank of America and Wells Fargo — pay a measly 0.01% on their standard savings accounts. This is not 1%, but one hundredth of a hundredth. If you have a balance of $10,000, that means you will earn $1 in interest over an entire year.
In contrast, putting the same amount into one of today’s best high-yield savings accounts — a process that can often be completed online in minutes — could mean earning more than an additional $400 per year.
The takeaway is clear: shopping pays. Interest rates on savings accounts vary widely, and major banks often rely on their large customer bases to remain in place. They assume that many people don’t realize that there are equally safe, less well-known institutions that offer much higher payouts — or that opening an additional savings account elsewhere can be done quickly and easily.
Why is this important?
Earning a competitive return on your savings helps your money grow instead of quietly losing purchasing power to inflation. By switching from the big banks’ interest rate to one of today’s best offers from a smaller institution, you can add hundreds to your balance.
The true cost of leaving your money in an account with a low rate
The three largest banks in the United States have long been known for their meager returns, and that remains the case to this day. Wells Fargo offers 0.01% interest on its standard and premium accounts, while Chase and Bank of America also offer 0.01% for standard customers, along with a slight increase for those considered “premium” or “preferred.”
At Bank of America, that still means just 0.02%, 0.03%, or 0.04%, depending on your preferred rewards category. With Chase, meanwhile, you’ll earn 0.02% if you link your savings account to a Chase checking account that you use at least five times a month.
How does this stack up against the competition? Bad. The national average savings account rate is 0.40%, while many banks pay more than 4%, some even as much as 5.00%.
Here’s how much these differences are in real dollars over the course of a year.
| balance | 0.01% APY Big Bank Rate | 4.50% high yield APY rate | Money lost over one year |
| $1000 | $0.10 | $45 | $44.90 |
| $5000 | $0.50 | $225 | $224.50 |
| $10,000 | $1.00 | $450 | $449.00 |
| $25,000 | $2.50 | $1,125 | $1,122.50 |
| $50,000 | $5.00 | $2,250 | $2,245.00 |
| $100,000 | $10.00 | $4500 | $4,490.00 |
One explanation why smaller, less well-known banks are more generous is that they are hungry for deposits. Without the name recognition or huge customer bases of big banks, they need to stand out – and offering higher interest rates is one of the easiest ways to do that. Banks make profits primarily by lending money, and depositors provide the funds that make this possible.
Operating costs also play a role. Many of the banks that offer the best returns operate online only, allowing them to save on branch expenses and pass those savings back on to customers in the form of better rates.
Why aren’t the big banks automatically the safest option?
Laziness isn’t the only reason people stick with big banks. Another strong motivation is the belief that money is safer with them. These are household names that have been around for decades, and many people assume they are “too big to fail.”
The truth is that small banks are just as safe because they offer the same federal protections. If an FDIC bank or NCUA credit union fails and you lose your deposits, the government will cover you up to $250,000 per person per institution. This applies whether you bank with Chase or a small online bank that almost no one has heard of.
Opening a high-paying savings account is surprisingly easy
Another common excuse people use for not transferring their money to an account with a higher interest rate is lack of time. But today, it’s easier to identify which accounts offer the best rates, with our daily ranking of the best high-yield savings accounts making your search easy.
Once you’ve decided which account is right for you, it usually just takes a short online application to open it – a quick process that requires answering a few basic questions – and then making an initial transfer to activate the account. Transfer times vary between banks, but in most cases, your money will reach the destination bank within one to three business days.
With all this in mind, there’s little reason to continue accepting poor prices. Opening the best savings account requires minimal effort, and the return can be hundreds of dollars or more each year.
important
A high interest rate is not the only thing to look out for. Also make sure to choose an account that doesn’t charge monthly fees or set a required minimum balance that you’re not sure you’ll be able to maintain. You will also need to verify that the organization is FDIC or NCUA insured.
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