How Often Do High-Yield Savings Rates Change?

What Is a High-Yield Savings Account?

A high-yield savings account is a type of interest-earning account that typically pays a much higher APY than a traditional savings account.

In late February 2023, the national average APY on standard savings accounts was just 0.35%, according to the Federal Deposit Insurance Corporation (FDIC). But plenty of banks now offer annual returns of well above 3% on high-yield savings accounts.

High-yield accounts can help you build your savings to reach your financial goals, such as making a down payment on a house, buying a car or paying for another significant expense. High-yield savings accounts are an appealing place to build an emergency fund or any other short-term savings you don't want to tie up in a certificate of deposit (CD) or an investment account.

How Often Do High-Yield Savings Rates Change?

Rates on high-interest savings accounts are variable and can change at any time, often without notice. So, when you open your savings account at one rate, it likely won't stay at that rate forever. This can make it hard to predict how much interest you'll actually earn in any given year on your savings account.

Variable savings rates are linked to the federal funds rate set by the Federal Open Market Committee (FOMC), which sets monetary policy for the Federal Reserve. Banks tend to offer higher interest rates on their high-yield savings accounts—and lenders charge higher interest rates on loans and credit cards—when the federal funds rate is higher.

On the flip side, if the FOMC cuts the federal funds rate, it's generally a sign that the economy is contracting. As a result, banks typically offer lower deposit rates and lenders charge lower interest rates on debt.

What to Do With Savings When Interest Rates Are Low

When the APY on your high-yield savings account decreases substantially, you may wonder if there's a better place to stash your cash. Ultimately, the answer depends on your financial situation and goals. Here are options to consider:

• Keep saving. If you don't yet have money set aside for unexpected needs, a savings account can be a great tool to build an emergency fund—even when rates drop. The lower rate may not be enough to keep up with inflation, but if you earmark the money for a rainy day, it can help keep you afloat without relying on high-interest loans or credit cards. Financial experts recommend having three to six months' worth of your basic expenses in savings in case of an unexpected need.
• Shop around. If rates tied to your current high-yield savings account are dropping, it may be time to comparison-shop to see if you can get a better deal elsewhere. Online banks may offer better rates than traditional banks. So if you've never considered banking online, when rates drop in your current account, you may want to take a look. It's also good to know that FDIC-insured online banks are just as safe as traditional brick-and-mortar banks.
• Consider laddering certificates of deposit (CDs). CD laddering is a strategy worth considering when savings rates get too low for your liking. When you ladder CDs, you buy multiple CDs with different terms that mature on a staggered basis; for example, buying a one-year CD and a three-year CD simultaneously. As each certificate of deposit matures, you'll have money to use or reinvest. The trade-off is that your money is tied up for a specific time frame, which may not be ideal for your personal savings goals.
• Try investing. Arguably the most riskiest alternative to a high-yield savings account is investing in stocks, bonds, crypto and the like. However, this might not be the best option if you can't afford to lose the money you invest. But putting your money into different types of investments might be an alternative if rates drop substantially on your savings account. If your savings rate drops, you're still earning interest on your money. Investing offers no guaranteed return.

Shift Your Savings Into High Gear

Cultivating good savings habits can help reduce or even eliminate the need to borrow money for an emergency or when you're between jobs. High-yield savings accounts can grow your money faster than a traditional savings account, helping to shift your savings into high gear.

Another good habit is monitoring your credit with Experian's credit monitoring service, where you'll have free access to your FICO^® Score^☉ and your Experian credit report. As you check regularly, you'll be able to see how your actions affect your credit score. You'll also be able to view the information on your credit report, which can help you decide which steps to take next with your money.