{"id":13931,"date":"2025-12-03T04:42:00","date_gmt":"2025-12-03T10:42:00","guid":{"rendered":"https:\/\/www.discover.com\/online-banking\/banking-topics\/?p=13931"},"modified":"2026-02-20T16:11:41","modified_gmt":"2026-02-20T22:11:41","slug":"how-interest-works-on-savings-accounts","status":"publish","type":"post","link":"https:\/\/www.discover.com\/online-banking\/banking-topics\/how-interest-works-on-savings-accounts\/","title":{"rendered":"How does interest work on a savings account?"},"content":{"rendered":"\n<p>It may come as no surprise that a&nbsp;savings account&nbsp;is a good place to store your money, especially when interest rates are relatively high.<\/p>\n\n\n\n<p>So how does savings account interest work? Fair question. It\u2019s one that puzzles many. Yet understanding how interest works on a savings account is an important part of maximizing the earnings on your hard-earned, carefully stashed, cash.<\/p>\n\n\n\n<p>We\u2019ve got just the overview of how interest works on a savings account to get you started:<\/p>\n\n\n<div  class=\"align wp-block-bb-video\"><div class=\"wp-block-embed__wrapper wp-block-embed-video-responsive\">\n    <div class=\"wp-block-embed-video-container\">\n        <iframe title=\"How Does Savings Account Interest Work?\" src=\"https:\/\/www.youtube.com\/embed\/8edPzh71RIQ?feature=oembed\" loading=\"lazy\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen=\"\"><\/iframe>\n    <\/div>\n<\/div><\/div>\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-are-savings-account-interest-rates\">What are savings account interest rates?<\/h2>\n\n\n\n<p>At its simplest, interest is the cost of borrowing money. Generally, you\u2019ll pay interest to borrow money, and you can collect interest when you lend money.<\/p>\n\n\n\n<p>But who\u2019s going to pay you to borrow your money? For many people,&nbsp;<a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/how-to-open-an-online-savings-account\/\" target=\"_blank\" rel=\"noreferrer noopener\">opening a savings account<\/a>&nbsp;is one of the easiest ways to go about this. When you put money in a savings account, the bank is technically borrowing the money and paying you interest in return.<\/p>\n\n\n\n<p>\u201cThe bank determines the rate, although it\u2019s affected by the general level of rates in the economy and whether the bank is trying to attract new deposits,\u201d says Liz Weston, CFP<sup>\u00ae<\/sup>, columnist at a personal finance&nbsp;website.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"2108\" height=\"869\" src=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_2-INARTICLE-e1668536045149.jpg\" alt=\"A man and woman look on as another women goes over documents in a folder.\" class=\"wp-image-14057\" srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_2-INARTICLE-e1668536045149.jpg 2108w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_2-INARTICLE-e1668536045149-300x124.jpg 300w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_2-INARTICLE-e1668536045149-780x322.jpg 780w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_2-INARTICLE-e1668536045149-768x317.jpg 768w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_2-INARTICLE-e1668536045149-1536x633.jpg 1536w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_2-INARTICLE-e1668536045149-2048x844.jpg 2048w\" sizes=\"auto, (max-width: 2108px) 100vw, 2108px\" \/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How does savings account interest work?<\/h2>\n\n\n\n<p>As you\u2019re considering how does bank interest work, keep in mind that the interest rate determines how much money a bank pays you to keep your funds on deposit. However, Michael Griffin, a certified public accountant and finance lecturer at a college in Massachusetts, says you should use the annual percentage yield (APY) to compare savings accounts and&nbsp;other savings products.<\/p>\n\n\n\n\n\n\n\n<p>\u201cThe simple way to look at the APY\u2014it\u2019s what you will get on your money,\u201d Griffin says. Meaning, you can use the APY to determine how much you\u2019ll actually earn in interest each year because the APY relies on two inputs: the interest rate and how often the&nbsp;<a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/compounding-your-savings-for-retirement\/\" target=\"_blank\" rel=\"noreferrer noopener\">interest compounds<\/a>. Both are important components of how interest works on a savings account because they impact how much money you\u2019ll earn over time. Your savings account interest could compound daily, monthly, quarterly, or annually.<\/p>\n\n\n\n<p>Suppose you deposit $5,000 into a savings account, don\u2019t deposit or withdraw any more money, and the interest rate doesn\u2019t change. If the account has a 1.00% interest rate and the interest compounds annually\u2014that is, the bank pays you interest on your balance once each year\u2014you\u2019ll earn $50 after the first year. The APY will also be 1.00% in this example because your interest didn\u2019t compound multiple times during the year.<\/p>\n\n\n<\/div>\n\n\n<div class=\"w-100 mb-8 md:mb-[60px] md:mt-[30px] max-h-[400px] overflow-hidden\">\n    <picture class=\"flex w-full\">                                                             \n        <source src='https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-does-savings-Account-Interest-Work-Heres-The-Guide_MARQUEE-scaled-e1764957141470-991x399.jpg?v=47'  data-srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_3-FULL-992x400.jpg.avif\" type=\"image\/avif\" media=\"(min-width: 755px)\"><source src='https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-does-savings-Account-Interest-Work-Heres-The-Guide_MARQUEE-scaled-e1764957141470-991x399.jpg?v=47'  data-srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_3-FULL-992x400.jpg?v=4.jpg\" media=\"(min-width: 755px)\">        <source src='https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-does-savings-Account-Interest-Work-Heres-The-Guide_MARQUEE-scaled-e1764957141470-1199x399.jpg?v=47'  data-srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_3-FULL-1200x400.jpg.avif\" type=\"image\/avif\" media=\"(min-width: 992px)\"><source src='https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-does-savings-Account-Interest-Work-Heres-The-Guide_MARQUEE-scaled-e1764957141470-1199x399.jpg?v=47'  data-srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_3-FULL-1200x400.jpg?v=4.jpg\" media=\"(min-width: 992px)\">        <source src='https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-does-savings-Account-Interest-Work-Heres-The-Guide_MARQUEE-scaled-e1764957141470-1399x399.jpg?v=47'  data-srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_3-FULL-scaled-1400x400.jpg.avif\" type=\"image\/avif\" media=\"(min-width: 1200px)\"><source src='https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-does-savings-Account-Interest-Work-Heres-The-Guide_MARQUEE-scaled-e1764957141470-1399x399.jpg?v=47'  data-srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_3-FULL-scaled-1400x400.jpg?v=4.jpg\" media=\"(min-width: 1200px)\">        <img src='https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_3-FULL-scaled-754x221.jpg?v=4' style='max-width:100%;' data-src=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_3-FULL-755x222.jpg?v=4.jpg\" alt=\"\" class=\"lazy object-cover w-full\" loading=\"lazy\" >                        \n    <\/picture>\n<\/div>\n\n\n    <div class=\"post__content\">\n\n\n\n<p>If a bank offers a 1.00% interest rate on a savings account, the rate of compounding could affect the APY and your earnings, although the differences may be minor.<\/p>\n\n\n\n<p>When interest rates are low, there isn\u2019t a huge difference on smaller balances. However, your earnings can increase over time, especially when the savings account offers a higher interest rate and APY, and you\u2019re regularly depositing money into your account.<\/p>\n\n\n\n\n\n\n<p>Lucky for savers, many banks offer savings accounts with interest that compounds daily or monthly, rather than annually.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-are-the-best-savings-interest-rates\">What are the best savings interest rates?<\/h2>\n\n\n\n<p>You might wonder what are some of the best savings interest rates? At the time of publication, the national average savings account interest rate is 0.57%, <a href=\"https:\/\/www.bankrate.com\/banking\/savings\/average-savings-interest-rates\/\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">according to Bankrate.com<\/a>.<\/p>\n\n\n\n<p>But that\u2019s an average. Different institutions offer their own interest rates, with rates that start at 0.01%. This means that an answer to the question \u201chow much interest does a savings account earn?\u201d largely depends on which savings account you\u2019ve chosen.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"2560\" height=\"1056\" src=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-Does-Savings-Account-Interest-Work-Heres-Your-Guide_InArticle-5_02-scaled-e1668536194377.jpg\" alt=\"A person sitting on a sofa with headphones on, while looking at their mobile phone.\" class=\"wp-image-22603\" srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-Does-Savings-Account-Interest-Work-Heres-Your-Guide_InArticle-5_02-scaled-e1668536194377.jpg 2560w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-Does-Savings-Account-Interest-Work-Heres-Your-Guide_InArticle-5_02-scaled-e1668536194377-300x124.jpg 300w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-Does-Savings-Account-Interest-Work-Heres-Your-Guide_InArticle-5_02-scaled-e1668536194377-780x322.jpg 780w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-Does-Savings-Account-Interest-Work-Heres-Your-Guide_InArticle-5_02-scaled-e1668536194377-768x317.jpg 768w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-Does-Savings-Account-Interest-Work-Heres-Your-Guide_InArticle-5_02-scaled-e1668536194377-1536x634.jpg 1536w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2025\/12\/How-Does-Savings-Account-Interest-Work-Heres-Your-Guide_InArticle-5_02-scaled-e1668536194377-2048x845.jpg 2048w\" sizes=\"auto, (max-width: 2560px) 100vw, 2560px\" \/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Where interest meets account fees and features<\/h2>\n\n\n\n<p>Understanding how interest works on a savings account and comparing the APY offered at several banks are important steps in choosing where to&nbsp;<a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/why-open-a-savings-account\/\" target=\"_blank\" rel=\"noreferrer noopener\">open an account<\/a>.<\/p>\n\n\n\n<p>Weston says you can often get better returns from an online savings account because&nbsp;online banks&nbsp;don\u2019t have to pay for branches and can pass the savings on to consumers. Online banks therefore \u201chave advantages over traditional banks,\u201d she says, \u201ctypically, no minimum account balance requirements or fees.\u201d<\/p>\n\n\n\n<p>It can be a smart idea to research <a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/how-to-avoid-bank-fees\/\" target=\"_blank\" rel=\"noreferrer noopener\">banks with no monthly fees<\/a> since overdraft or ATM fees can really add up. These fees could offset your interest earnings or even cost you more than you earn. Other potential expenses include fees for bank checks or outgoing wire transfers.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Use a savings account for your financial goals<\/h2>\n\n\n\n<p>So, what is interest on a savings account? Now that you\u2019ve seen how interest works on a savings account and understand the nuances that surround how much interest does a savings account earn, you can put your new knowledge to work. Whether you\u2019re saving for a new car, a vacation, or you want to build up or <a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/4-steps-to-start-an-emergency-fund\/\" target=\"_blank\" rel=\"noreferrer noopener\">start an emergency fund<\/a>, having a savings strategy can help you meet your goals.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"2121\" height=\"874\" src=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_6-INARTICLE-e1668536286562.jpg\" alt=\"A girl plays with a bubble gun as her father and grandparents look on smiling.\" class=\"wp-image-14059\" srcset=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_6-INARTICLE-e1668536286562.jpg 2121w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_6-INARTICLE-e1668536286562-300x124.jpg 300w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_6-INARTICLE-e1668536286562-780x321.jpg 780w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_6-INARTICLE-e1668536286562-768x316.jpg 768w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_6-INARTICLE-e1668536286562-1536x633.jpg 1536w, https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-content\/uploads\/2022\/11\/How-Does-Savings-Account-Interest-Work-Heres-The-Guide_6-INARTICLE-e1668536286562-2048x844.jpg 2048w\" sizes=\"auto, (max-width: 2121px) 100vw, 2121px\" \/><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<p>Weston says without a minimum deposit requirement, you could use online savings accounts and \u201cset up as many accounts as you like and name them for different goals: vacation, holidays, property taxes, and so on.\u201d Separating your funds into&nbsp;multiple savings accounts earmarked for specific purposes&nbsp;can make it easier to resist temptations to spend randomly, which can ultimately help you reach your financial goals sooner.<\/p>\n\n\n\n<p>If you want to focus all of your efforts in one place, another option is to have one account where you keep all of your savings. You could then use a spreadsheet to categorize your funds by bills, expenses, or&nbsp;<a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/how-to-set-financial-goals-and-crush-them\/\" target=\"_blank\" rel=\"noreferrer noopener\">financial goals<\/a>.<\/p>\n\n\n\n<p>These are just two examples. Have a different idea about how to organize your savings? Try it out. As long as you\u2019re progressing toward your goals and using your newfound understanding of how interest works on a savings account, you\u2019re headed in the right direction.<\/p>\n\n\n\n<p>Did you know you can use more than one savings account to reach your financial goals? See how you can keep your savings organized and on track with <a href=\"https:\/\/www.discover.com\/online-banking\/banking-topics\/multiple-savings-accounts-save-more\/?ICMPGN=OS-BK-ARTCTA\" target=\"_blank\" rel=\"noreferrer noopener\">multiple savings accounts<\/a>.<\/p>\n\n\n\n<p class=\"disclaimer\">Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.<\/p>\n\n\n\n<p class=\"disclaimer\">The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover, a division of Capital One, N.A., or its affiliates.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>How does bank interest work, and what are savings account interest rates? These concepts can be confusing, but this article and video will help set the record straight.<\/p>\n","protected":false},"author":15,"featured_media":22605,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[76,77],"tags":[35,72,32,133],"class_list":["post-13931","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banking101","category-online-savings-account","tag-financial-education","tag-interest-rates","tag-online-savings-account","tag-video"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/posts\/13931","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/comments?post=13931"}],"version-history":[{"count":43,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/posts\/13931\/revisions"}],"predecessor-version":[{"id":23079,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/posts\/13931\/revisions\/23079"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/media\/22605"}],"wp:attachment":[{"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/media?parent=13931"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/categories?post=13931"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.discover.com\/online-banking\/banking-topics\/wp-json\/wp\/v2\/tags?post=13931"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}