Understanding Interest Rates on Savings Accounts

Learn how banks set deposit interest rates for CDs, MMAs and savings accounts

Opening a savings account, certificate of deposit or money market account can be a great way to get you on your way to reaching your savings goal. These deposit accounts are more secure than volatile market investments, and they pay you varying levels of interest on the balance you maintain. You may be wondering how these interest rates are determined. After all, understanding interest on savings accounts is critical to maximizing your money.

You can increase your financial savvy by learning how deposit interest rates are determined.

Understanding interest on savings accounts

While interest rates on products like mortgages and car loans are determined by federal rates and the state of the economy, deposit interest rates are set by individual banks and credit unions. It's up to each bank to determine its own CD interest rates, money market interest rates and interest on savings accounts. This is why you'll see rates fluctuating across institutions.

So, what causes a bank to pick a certain rate? The amount of business the bank is currently doing. The bank uses money in deposit accounts to back other transactions, such as people applying for loans or taking out investments. If there's a lot of activity in these types of accounts, the bank may be able to offer higher interest rates. But, if consumers are making fewer transactions, the bank will likely have less cash on hand to offer in the form of interest payments.

Comparing interest rates across deposit products

While interest rates may vary between banks, they tend to follow a similar trend. The interest rates on savings accounts tend to be the lowest while certificates of deposit tend to have higher interest rates. Money market interest rates are generally somewhere in between. Why is this? The longer the money is stored in the account, the higher the interest rate. Savings accounts let you have unlimited access, which means the balance can change frequently. Thus, the rates aren't as high. On the other hand, CDs require your money to remain in the account for the duration of the term. Banks will reward this long-term deposit with a higher interest rate. CDs may also have higher minimum deposit requirements, and in exchange for depositing more money, you get more in interest.

Open a savings account with Citizens Bank

When you bank with Citizens Bank, you'll enjoy competitive interest rates on savings products that meet your needs. You can apply for a savings account, money market or CD online in a few minutes so you can start saving. If you have questions about current interest rates or the savings products, you can speak with a Citizens Bank customer care representative at 1-877-360-2472.


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