What's happening to savings rates this year

Savings account interest rates move based on what the Federal Reserve does with its benchmark rate, not on a fixed schedule or automatic climb. The Fed raised rates aggressively from 2022 through mid-2023 to fight inflation, which pushed savings rates up sharply. Since mid-2023, the Fed has held its rate steady, and some banks have begun lowering their savings rates even though the Fed rate hasn't moved. Whether rates go up, down, or stay flat depends on what the Fed decides at its next meeting—not on a trend that's may provide to continue.

Right now, the direction is unclear. The Fed meets roughly every six weeks to decide whether to raise, lower, or hold its rate. Economic data—inflation numbers, employment reports, and spending—determines what the Fed does next. If you're shopping for a savings account, the rate you see today may not be the rate you see in three months, and different banks change their rates on different schedules.

Key Takeaways

  • Savings rates are set by individual banks and move in response to Federal Reserve decisions, not on a predictable upward or downward path.
  • The Fed's benchmark rate has been held steady since mid-2023, and some banks have already begun lowering savings rates despite no Fed change.
  • The next rate move depends on inflation and employment data, which means rates could rise, fall, or stay the same depending on economic conditions.
  • Shopping around between banks matters because rates vary widely—a high-yield savings account at one bank may pay double what another bank offers.
  • If you lock in a rate today, it is not locked; banks can lower rates on existing accounts without notice, though they must notify you before the change takes effect.

How the Federal Reserve controls the direction of savings rates

The Federal Reserve sets a target range for the federal funds rate—the rate banks charge each other to borrow overnight. Banks use this as a reference point when deciding what to pay depositors on savings accounts. When the Fed raises its rate, banks have more incentive to raise what they pay you because they're earning more on their own lending. When the Fed lowers its rate or holds it steady for a long time, banks often lower deposit rates because they're earning less.

The Fed does not directly set your savings rate. It sets one benchmark, and each bank decides independently how much of that benefit to pass on to you. Some banks raise savings rates quickly when the Fed moves; others lag behind. Some banks lower rates before the Fed even hints at a cut. This is why two banks can offer vastly different rates on the same day.

The Fed meets eight times per year to review economic data and decide on its next move. Between meetings, the rate stays the same. If you hear that rates might go up or down, it's because economists are predicting what the Fed will do at its next meeting—not because a change has already been decided.

Why banks are lowering rates even though the Fed hasn't moved

Banks lower deposit rates when they expect future Fed cuts or when they simply have enough deposits and don't need to attract more money. In 2024, many banks began cutting savings rates even though the Fed's rate remained unchanged. This happened because banks were betting the Fed would cut rates later in the year, or because they had already gathered enough customer deposits and wanted to improve their profit margins.

A bank's rate decision is not tied to the Fed's current rate alone—it's tied to what the bank thinks will happen next and how much money it needs right now. If a bank is flush with deposits, it has no reason to pay you more. If a bank expects the Fed to cut rates in the coming months, it may cut its own rates preemptively to lock in higher profit margins before it has to pay less.

This is why you can see savings rates fall during periods when the Fed rate is stable or even rising slightly. The Fed's current rate is only one input into a bank's decision.

What economic data the Fed watches before raising or lowering rates

The Fed looks at three main things: inflation, employment, and spending. If inflation is high and people are spending freely, the Fed may raise rates to cool things down. If inflation is low and people are losing jobs, the Fed may lower rates to encourage borrowing and spending. The Fed tries to balance these two goals, which sometimes conflict.

Inflation data comes out monthly from the Bureau of Labor Statistics. Employment data comes out monthly from the Department of Labor. Spending data comes from retail sales reports and consumer confidence surveys. The Fed watches all of these before each meeting. If inflation is falling and jobs are stable, the Fed may hold rates steady. If inflation is rising or jobs are disappearing, the Fed may move in either direction depending on which problem looks worse.

You can follow these reports yourself if you want to predict what the Fed might do. The Fed publishes its own economic projections four times per year, which include what Fed officials think rates will be in the future. These projections change as new data arrives, so they're a useful guide to where rates might head—but they're not guarantees.

How to find the best rate available right now

High-yield savings accounts at online banks typically pay more than savings accounts at traditional banks. Online banks have lower overhead costs and pass some of that savings on to depositors. As of now, high-yield savings accounts at online banks pay between 4% and 5.35% APY, depending on the bank and the day you check. Traditional brick-and-mortar banks typically pay between 0.01% and 0.5% APY on regular savings accounts.

The difference matters. On a $10,000 deposit, the difference between 0.01% and 4.5% is roughly $450 per year. Shop around before you deposit money. Check rates at multiple banks—online banks, credit unions, and traditional banks. Rates change frequently, so a rate you see today may be different tomorrow. Some banks publish their rates on their websites; others require you to log in or call to see the current rate.

Money market accounts sometimes pay slightly more than savings accounts, but they usually come with a debit card or check-writing privileges, which means the bank is taking on more risk. Certificates of deposit (CDs) lock your money away for a set period—three months, six months, one year, five years—and pay a fixed rate for that entire period. If rates go up after you buy a CD, you're stuck with the lower rate. If rates go down, you're protected. CDs make sense if you won't need the money for a specific amount of time and you want to lock in today's rate.

What happens to your rate if the Fed cuts or raises rates

If you have money in a savings account, your rate is not locked in. Banks can lower the rate on your account at any time, though federal law requires them to notify you before the change takes effect. The notification period varies—some banks give 21 days' notice, others give 30 days or more. You have the right to close the account before the new rate takes effect if you don't like the change.

If the Fed raises rates, your bank may or may not raise your savings rate. Some banks raise rates quickly; others wait weeks or months. If the Fed cuts rates, your bank will almost certainly lower your savings rate, often within days. Banks are faster at cutting rates than raising them because they want to protect their profit margins.

If you want to protect yourself from rate cuts, a CD locks in your rate for the full term. If you buy a one-year CD at 4.5%, you'll earn 4.5% for the full year even if rates fall to 2% next month. The tradeoff is that you can't access the money without paying an early withdrawal penalty, which is usually a few months' worth of interest.

The difference between fixed rates and variable rates

Savings accounts have variable rates, which means the bank can change the rate whenever it wants (with notice). CDs have fixed rates, which means the rate is locked in for the full term. Money market accounts usually have variable rates, though some banks offer fixed-rate money market accounts.

A variable rate is better if you think rates are going up, because your bank will raise your rate along with the Fed. A fixed rate is better if you think rates are going down, because you'll keep earning the higher rate even after the Fed cuts. Right now, most economists expect the Fed to cut rates at some point in the coming year, which means fixed rates (CDs) may be more attractive than variable rates (savings accounts).

The tradeoff is access. With a savings account, you can withdraw your money anytime. With a CD, you're locked in for the term. If you need the money before the CD matures, you'll pay an early withdrawal penalty. Some banks offer no-penalty CDs, which let you withdraw early without a penalty, but these usually pay slightly less than regular CDs.

Frequently Asked Questions

Will savings rates go up if the Fed raises rates?

Probably, but not immediately and not by the same amount. Banks typically raise savings rates within a few weeks of a Fed increase, but some lag behind. The amount banks raise rates varies—a 0.25% Fed increase might result in a 0.1% to 0.25% increase in your savings rate, depending on the bank.

Should I move my money to a different bank if my rate drops?

Only if another bank is paying significantly more. Banks notify you before lowering rates, so you have time to shop around. If your current bank is paying 3.5% and another bank is paying 4.5%, moving makes sense. If the difference is 0.1%, the hassle of moving may not be worth it.

Is a CD or a savings account better right now?

That depends on whether you think rates will go up or down. If you expect rates to fall, a CD locks in today's higher rate. If you expect rates to rise, a savings account lets you benefit from increases. Most economists expect rates to fall in the coming year, which favors CDs.

Can a bank lower my savings rate without telling me?

No. Federal law requires banks to notify you before lowering rates on existing accounts. The notification period is usually 21 to 30 days. You can close the account before the new rate takes effect if you don't want to accept the lower rate.

What's the difference between APY and interest rate?

APY (annual percentage yield) includes the effect of compounding—interest earned on interest. The interest rate is the base rate the bank pays. APY is always higher than the interest rate because it accounts for how often interest is compounded. Banks must disclose APY, so use that number when comparing rates between banks.