Why Some Bank Accounts Pay Interest While Others Never Will

The Federal Reserve raised its target range for the federal funds rate by a quarter point, to 3.75%–4%, on September 16, 2026, its first change of the year. The FDIC's national averages published on September 21, based on rates at the end of August, show savings accounts paying 0.37% and interest checking 0.07%, while the effective federal funds rate already stood at 3.63%. For most households, a Fed hike does not reach a checking or standard savings account on its own: the account's design and the bank's pricing decide what you earn, and getting a rate that tracks the market usually means moving the money yourself.

Key takeaways

The FDIC's September 2026 national rates, effective September 21 and based on data from the end of August, are 0.37% for savings, 0.07% for interest checking, 0.63% for money market deposit accounts and 1.73% for a 12-month CD.
When the Fed's benchmark rose from 0.08% to 5.33% between 2022 and 2024, the FDIC's national savings rate rose from 0.06% to a peak of 0.47%, about 8 cents of each dollar of increase. Depositors' reluctance to move their money is a large part of why banks can price this way.
Some accounts pay nothing by design. Before July 21, 2011, Regulation Q barred Fed member banks from paying interest on demand deposits, and for-profit organizations, such as corporations, still cannot hold interest-bearing NOW accounts.
Regulation DD requires banks to state the APY, whether the rate can change, how often interest compounds and is credited, and any balance tiers. A variable rate can be cut without advance notice.
On $10,000 held for a year, the 0.37% average pays $37 and an illustrative 3.50% APY pays $350. Both amounts are taxable, and you should receive Form 1099-INT from a payer once its interest to you reaches $10.

What it means for you

Savings at a bank paying near the average: the hike is not passed through automatically; compare your statement APY with the worked example below.
Money in checking for bills: these accounts are built for payments, so the question is how much you keep there beyond what bills need.
Business owners: business checking can legally pay interest since 2011, but it is a pricing choice, and Regulation DD's consumer disclosure rules do not cover business accounts.
Cash at a brokerage: uninvested cash may be swept into bank deposits at a rate the firm sets; see the section on cash sweeps.

Why banks can pay so little

A bank earns its living on the spread between what it collects on loans and securities and what it pays for funding. The industry's net interest margin was 3.32% in the second quarter of 2026, according to the FDIC's Quarterly Banking Profile. That margin is interest income minus interest expense, divided by earning assets, so, other things equal, paying depositors less raises it.

After the September decision, the Fed set the interest rate paid on reserve balances at 3.90%, effective September 17, 2026. That is what a bank earns, before its own costs, on money parked at the Fed, against a 0.37% national savings average measured just before the hike.

Deposit betas: how much of a rate move reaches you

Economists call the share of a Fed rate change that banks pass on to depositors the deposit beta. New York Fed researchers found the cumulative beta on interest-bearing deposits reached almost 0.4 in the fourth quarter of 2022. That measure covers all interest-bearing deposits, including CDs and large balances. The FDIC's national savings rate, which tracks the $2,500 tier and weights each institution by its share of domestic deposits, moved far less.

FDIC release	Effective fed funds rate used by the FDIC	National savings rate	National interest checking rate
March 2022	0.08%	0.06%	0.03%
January 2024	5.33%	0.47%	0.07%
September 2024	5.33%	0.46%	0.08%
September 2026	3.63%	0.37%	0.07%

Figures come from the FDIC's archive of monthly national rates. Each release reflects rates on the last business day of the prior month. For savings and checking, the FDIC's current release uses the New York Fed's effective federal funds rate as its benchmark. From March 2022 to January 2024 the benchmark rose 5.25 points and the savings average rose 0.41 point, a pass-through of roughly 0.08. On the way down, from September 2024 to September 2026, the benchmark fell 1.70 points and savings fell 0.09 point. Interest checking hardly moved in either direction.

Why savers stay anyway

Low rates last partly because many depositors do not move. A February 2024 Kansas City Fed bulletin found the gap between money market fund yields and bank deposit rates was more than 2 percentage points, about double the peaks of past tightening cycles. Money did leave: money market funds took in about $900 billion from early 2022 through the third quarter of 2023. But deposit outflows largely stabilized in the second half of 2023, and the authors note that the deposits left at banks are more likely held by people who value deposit insurance, immediate access and payment services.

Accounts built to pay nothing

A basic checking account exists to move money: debit cards, bill pay, checks, direct deposit. Many such accounts pay no interest at all, and that was once required by law for a large part of the market. Regulation Q prohibited Federal Reserve member banks from paying interest on demand deposits until Section 627 of the Dodd-Frank Act repealed the underlying statute effective July 21, 2011.

Before the repeal, households could earn interest on checking through negotiable order of withdrawal (NOW) accounts. The NOW account statute still limits these accounts to individuals, nonprofit organizations and government units, so a corporation or other for-profit organization cannot hold one. Since 2011, an ordinary business demand deposit can pay interest, but whether it does is the bank's decision.

Reserve requirements no longer explain zero-rate accounts either. The Fed cut reserve requirement ratios to zero effective March 26, 2020, so banks are not obliged to set aside part of checking balances. A checking account that pays 0% today does so because the bank chose that price for that product.

What the APY must tell you

For consumer accounts, the Truth in Savings Act and its rule, Regulation DD (12 CFR part 1030), set what a bank must disclose. Before an account is opened, the bank must disclose the annual percentage yield and the interest rate, using those terms. If you open an account away from the bank, for instance by mail, and have not already received the disclosures, they may arrive up to 10 business days later; if you open it online or by other electronic means, they must come first. It must also say whether and how a variable rate can change, how often interest is compounded and credited, any minimum balance needed to earn the APY, fees, and how long a fixed rate lasts.

APY versus interest rate. The interest rate does not include compounding. The APY does, assuming the money and its interest stay in the account for a year with no other deposits or withdrawals, under the Appendix A formula.
Compounding and crediting. The rule does not require any particular frequency. It does require interest on the full principal every day, by either the daily balance or the average daily balance method, under section 1030.7. Paying on the lowest or ending balance is prohibited.
Variable and promotional rates. A bank must give 30 days' notice before changing terms in a way that hurts you, but rate changes on variable-rate accounts are exempt from that notice. An ad that quotes an APY on a variable-rate account must say the rate may change after the account is opened, and any APY ad must give the period it is offered or the date it was accurate, under section 1030.8.
Tiers. A tiered account must show an APY, or a range of APYs, for each balance tier. Under Appendix A, a bank either pays the tier's rate on the whole balance or pays each rate only on the slice of the balance inside that tier.

Tiering method matters. Illustrative example (ignoring compounding): an account pays 0.50% up to $10,000 and 3.00% above it, and you hold $15,000. Paying the top rate on the whole balance gives about $450 a year. Paying each rate on its own slice gives $50 plus $150, or $200. The disclosure says which method applies.

These rules cover accounts held by individuals for personal, family or household purposes. Business accounts sit outside Regulation DD's disclosure requirements.

A year of interest on $10,000

Because the APY already includes compounding, a year's interest is balance times APY, as long as the rate holds and nothing is deposited or withdrawn.

Interest for one year = Balance × APY
APY = (1 + r / n)^n − 1

Balance = amount on deposit
r       = annual interest rate (decimal)
n       = compounding periods per year (365 for daily)

Regulation DD general form:
APY = 100 × [(1 + Interest / Principal)^(365 / Days in term) − 1]

A 3.44% interest rate compounded daily works out to a 3.50% APY. Illustrative example: $10,000 stays in an account for 12 months at an unchanged rate. The 3.50% APY is a hypothetical figure, chosen because it sits below both the Fed's 3.90% reserve rate and the 13-week Treasury bill yield; it is not a quote from any bank.

Rate (APY)	Interest in one year	After 22% federal tax (illustrative)
0.07% (national interest checking average)	$7	$5.46
0.37% (national savings average)	$37	$28.86
0.63% (national money market deposit average)	$63	$49.14
3.50% (hypothetical higher-yield account)	$350	$273

The difference between the savings average and the hypothetical 3.50% is $313 before tax and about $244 after a 22% federal rate, ignoring state tax. On a $1,000 emergency fund, the same gap is about $31 a year. Variable rates change, so treat these as one-year snapshots, not forecasts.

Taxes on the interest

Bank and credit union interest is taxable income. The IRS says you should receive Form 1099-INT when interest paid reaches $10 or more, and you must report all taxable interest even when no form arrives. The $7 from the checking example would not trigger a form, but it still belongs on your return. Interest on Treasury bills is subject to federal income tax and exempt from state and local income tax.

Savings, MMDAs, funds and T-bills

Names overlap: a money market deposit account is a bank deposit, while a money market fund is an investment.

Product	What it is	Protection	Rate behavior
Savings account (including high-yield)	Bank or credit union deposit	FDIC or NCUA, $250,000 per depositor, per institution, per ownership category	Usually variable; set by the bank
Money market deposit account (MMDA)	Bank deposit, often with checks or a card	FDIC or NCUA, same limits	Variable; often tiered by balance
Money market fund	Mutual fund holding short-term debt	Not FDIC-insured; can lose value	Yield moves with short-term market rates, minus fees
Treasury bill	U.S. government debt, 4 to 52 weeks	Not FDIC-insured; a direct U.S. government obligation	Fixed at purchase until maturity

The FDIC insures checking, NOW, savings, money market deposit accounts and CDs up to $250,000 per depositor, per insured bank, for each ownership category, and all your deposits in the same category at the same bank are added together. The coverage applies only at an FDIC-insured bank and only if that bank fails. It lists mutual funds and Treasury bills among the products it does not cover. The NCUA provides up to $250,000 of share insurance at federally insured credit unions on comparable terms.

An app or other nonbank company is never FDIC-insured itself: your money is eligible only once it is deposited at an insured bank and other conditions are met, and the insurance does not protect you if the nonbank company fails.

The SEC warns that money market fund shares are not guaranteed by the FDIC the way bank accounts are, even when a fund aims for a stable $1.00 share price. Treasury bills sell in $100 increments for terms of 4 to 52 weeks. On October 2, 2026, Treasury's daily bill rates showed a 13-week coupon-equivalent yield of 4.11%. A bill's yield is locked only until it matures, so rolling it over means taking whatever rate prevails then.

Brokerage cash sweeps

Cash waiting in a brokerage or advisory account is often swept automatically into deposits at partner banks, at a rate the firm or its affiliates set. Any FDIC coverage then depends on those banks, and it counts together with money you already hold at the same bank in the same ownership category.

In January 2025 the SEC settled charges against Wells Fargo Advisors and Merrill Lynch for $60 million in combined penalties. According to the SEC's findings, the firms failed to adopt and implement adequate written policies for their advisory clients' cash sweeps; the SEC also said the yield gap between their bank sweeps and other sweep choices at times grew to almost 4 percentage points. The firms neither admitted nor denied the findings.

On April 24, 2026, Oppenheimer said it had agreed, in a binding term sheet, to pay $70 million to settle a class action over its cash sweep program, subject to court approval and without admitting liability. The class's claims, for breach of contract and related causes, are allegations that were never tried; the company says its rates were competitive with major competitors'. Its filing describes about 25 similar suits against financial firms. On September 18, 2026, the federal court in Manhattan entered a final order and judgment on the settlement (Liberty Capital Group v. Oppenheimer, S.D.N.Y.).

If a brokerage holds your cash, its disclosures list the sweep rate, which can be compared with any money market fund option the firm offers.

Frequently asked questions

Is there a legal cap on what a bank can pay on savings?

No general cap applies to healthy banks. The FDIC's national rate cap, 4.38% for savings in September 2026, limits only institutions that are less than well capitalized, so they cannot bid for deposits far above market rates; such a bank may instead use a local rate cap for deposits from its own market area, after giving the FDIC evidence of local rates. It is a ceiling for troubled banks, not a guide to what other banks pay.

Why do some savings accounts still limit withdrawals?

The Fed deleted the six-per-month limit on convenient transfers from the Regulation D savings deposit definition in April 2020, after reserve requirements went to zero. The change allowed banks to stop enforcing the limit rather than ordering them to. A bank can still set transfer limits in its account agreement, and those limits must appear in the account disclosures.

Does FDIC insurance cover interest already earned?

Yes, within the limit: principal and accrued interest together count toward the $250,000. Coverage is figured dollar for dollar on principal plus interest accrued through the date the bank fails. In the FDIC's example, a single-owner CD with $195,000 of principal and $3,000 of accrued interest is fully insured at $198,000.

Is interest left in the account still taxable?

Generally, yes. The IRS treats most interest credited to an account that you can withdraw from without penalty as taxable in the year it becomes available to you. It does not matter whether you take the money out or leave it to compound.

Can a bank skip interest when a balance dips below the minimum?

It can, if the account sets a minimum balance to earn interest. A bank using the daily balance method may skip interest for the days you are below the minimum; one using the average daily balance method may skip the whole period. Once the minimum is met, interest must be paid on the full balance, not just the amount above the minimum, and a negative balance counts as zero.

Before you move your cash

Find the "annual percentage yield earned" and the dollar interest on your latest statement; Regulation DD requires both on any periodic statement the bank sends.
Read the account disclosure of any account you are considering: fixed or variable rate, how long a promotional rate lasts, the tiering method, minimum balances, fees, and how often interest is credited.
Confirm the institution is FDIC- or NCUA-insured, and keep balances at one institution within $250,000 per ownership category, or use different categories as the FDIC's rules allow. Count brokerage sweep deposits and money placed through an app at the same bank toward that total.
Leave enough in checking to cover bills and avoid overdrafts, and check whether a brokerage sweep rate is lower than the alternatives your firm offers.
Watch two dates: the FDIC's October national rates, due on the third Monday of the month (October 19, 2026), will be the first to reflect data after the hike; the next FOMC meeting is October 27–28, 2026.

This article is for general education and is not personal financial or tax advice; account terms and rates vary by institution and change over time.