How Often Do High-Yield Savings Rates Change?

How Often Do High-Yield Savings Rates Change?

High-yield savings rates don't change that often. While rates can change without notice, it's unlikely that a bank or credit union would significantly cut rates on a whim.

Rate changes often coincide with changes to the federal funds rate, which is the rate banks use when borrowing and lending between one another. This target rate, set by the Federal Reserve, influences rates on savings accounts, certificates of deposit (CDs) and other deposit accounts. When the federal funds rate goes down, rates generally do the same—and vice versa.

At the end of the day, financial institutions want to attract customers and hold on to their business—and offering competitive rates on HYSAs can help them do that.

Savings Rate Trends

The Federal Open Market Committee (FOMC) meets eight times a year to assess economic conditions and decide whether to change its benchmark rate. They may initiate a rate hike as a way of cooling inflation, as higher rates increase the cost of borrowing money and can help rein in consumer spending. Alternatively, they might lower the federal funds rate in hopes of stimulating a sluggish economy by encouraging spending.

How Does the Fed Rate Cut Impact Savings Accounts?

The Federal Reserve lowered the federal funds rate by a quarter percentage point in September, bringing the target range to 4.00% to 4.25%. They also hinted at two additional rate cuts before the year ends, though that isn't guaranteed.

Future rate cuts could bring down rates, but time will tell how things pan out. Conversely, future rate increases would likely bump up rates. That's good news for savers, including those holding accounts considered "high yield," but you can also expect to pay higher rates on loans and credit cards.

What to Do With Your Savings When Interest Rates Are Low

The truth is that you can't control monetary policy, but you might revisit your savings strategy if rates are on the decline. Here are some options to consider if that happens:

• Look for HYSAs with better rates: Rates can vary from one financial institution to the next, which is why it's important to shop around. It may be possible to lock in a higher rate with another bank or credit union. (Online banks tend to offer the best rates.) But be on the lookout for fees and minimum balance requirements before making a jump.
• Look into a CD: A CD might offer a higher rate, making it a good place to keep a portion of your savings. But the downside is that you'll likely incur an early withdrawal penalty if you tap your funds before the term ends. For this reason, it isn't wise to keep your emergency fund in a CD.
• Consider investing more: If your emergency fund is fully funded, and you don't have high-interest debt, you might choose to invest some of your cash reserves. You could do that through a workplace retirement account like a 401(k) or a regular brokerage account. Historically, the stock market has produced average returns of about 10% annually. Just keep in mind that stock investing carries more risk—and returns are never guaranteed.

The Bottom Line

Rates on HYSAs are variable, which means that you can expect rate fluctuations even with a high yield. This can happen at any time, though it's often linked to changes to the federal funds rate. While rate hikes can make it more expensive to borrow money, it can also help you earn more on your savings. The opposite also tends to be true.

Even so, a high-yield savings account is generally considered the best place to park your emergency fund, thanks to their liquidity and competitive rates. Most accounts are also FDIC or NCUA insured, making it highly unlikely that you'd lose money.