Last month, the Federal Reserve cut the federal funds rate by half a percentage point. This benchmark rate is now 4.75% to 5.00%. When the federal funds rate changes, credit unions and banks tend to make adjustments to the interest rates for consumer products.
As expected, many banks have recently reduced rates for accounts that earn interest, such as money market accounts and high-yield savings accounts (HYSAs). My own bank recently lowered the rate for my HYSA. Here’s why I’m not too upset about this change.
My HYSA APY went from 4.20% to 4.00%
It’s crucial to be aware of the annual percentage yield (APY) for your bank accounts. The APY is how much you can expect to earn by keeping your cash in the bank for one year.
Knowing this rate can help you make informed choices about your money — like deciding whether to transfer your money to a different account with a higher APY to maximize the interest you earn or keep it where it is.
Our Picks for the Best High-Yield Savings Accounts of 2024
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American Express® High Yield Savings APY 4.10%
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Min. to earn $0
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APY 4.10%
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Min. to earn $0 |
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Capital One 360 Performance Savings APY 4.10%
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Min. to earn $0
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APY 4.10%
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Min. to earn $0 |
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CIT Platinum Savings APY 4.70% APY for balances of $5,000 or more
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Min. to earn $100 to open account, $5,000 for max APY
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APY 4.70% APY for balances of $5,000 or more
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Min. to earn $100 to open account, $5,000 for max APY |
The APY for my HYSA recently dropped from 4.20% to 4.00%. While the rate is lower, it’s not a significant reduction. The difference in interest that I’ll earn isn’t enough to justify moving my savings elsewhere, so I’m not worried about this change, and my money is staying put.
Let’s explore a few hypothetical scenarios to illustrate how a 0.20% rate change like this impacts your earnings:
| Initial Balance | Balance After 1 Year at 4.20% APY | Balance After 1 Year at 4.00% APY | Difference in Interest Earned |
|---|---|---|---|
| $1,000 | $1,042.00 | $1,040.00 | $2.00 |
| $5,000 | $5,210.00 | $5,200.00 | $10.00 |
| $10,000 | $10,420.00 | $10,400.00 | $20.00 |
| $20,000 | $20,840.00 | $20,800.00 | $40.00 |
| $50,000 | $52,100.00 | $52,000.00 | $100.00 |
Data source: Author’s calculations.
As you can see, the earnings difference is not big enough for me to feel the need to make drastic money moves. Plus, the rate is on par with what many other online banks now offer.
If you don’t have a HYSA, now is still an excellent time to open an account. You can reach your savings goals sooner by earning interest.
Ready to get rewarded for saving? Explore our list of the best high-yield savings accounts to find the right fit for you.
Savers can earn more with HYSAs
Even as rates change, HYSAs are still excellent financial vehicles for stashing savings. Many financial institutions, like national and regional banks, offer much lower APYs for savings accounts.
According to the FDIC, the national average for savings accounts is currently 0.46%. That’s a huge difference compared to the 4.00% my bank now offers me.
If you’re keeping your savings in your checking account or a savings account with a low APY, now is a good time to open a HYSA. By transferring your money to an account with a higher APY, you can maximize the interest you earn.
Don’t let interest rate cuts get you down
For some, interest rate reductions spell good news. Lower rates are beneficial if you apply for a car loan or a mortgage. However, for savers, reduced interest rates mean less interest earned from their savings.
But slight rate reductions won’t impact your savings significantly. If you have a HYSA, you’ll continue to earn more interest than you’d get from the average savings account. Don’t let an interest rate reduction get you down. Instead, focus on the long term as you keep working hard to reach your financial goals.