Savings account rates are rising and falling based on what the Federal Reserve does with interest rates, not because banks suddenly want to pay you more

Banks set savings account rates in response to the Federal Reserve's benchmark interest rate, which the Fed raises or lowers roughly every six weeks. When the Fed raises its rate, banks eventually raise what they pay on savings accounts—but not immediately, and not all banks at the same speed. When the Fed cuts its rate, banks drop savings rates faster than they raised them. The rate you see today is not a promise about tomorrow.

The Fed's current rate sits between 5.25% and 5.50% as of early 2024, and the Fed has signaled it may cut rates later in the year if inflation continues to cool. That means savings rates that climbed to 4% to 5% in late 2023 may start falling within months. Online banks and credit unions tend to move first and move higher than brick-and-mortar banks, so if you want the best rate available right now, you have to shop and move money—there is no "set it and forget it" strategy that works.

Key Takeaways

  • Savings account rates follow the Federal Reserve's benchmark rate, which changes roughly every six weeks, not a yearly schedule or a bank's profit needs.
  • Online banks and credit unions typically offer rates 0.5% to 1.5% higher than traditional banks because they have lower overhead costs.
  • When the Fed raises rates, banks take weeks or months to pass the increase to savers; when the Fed cuts, banks drop rates within days.
  • The rate you lock in today will almost certainly change within three to six months, so comparing rates across banks every few months is normal, not a sign something is wrong.

How the Federal Reserve's decisions move your savings rate

The Federal Reserve sets a target range for the federal funds rate—the rate banks charge each other to borrow overnight. This is not a rate you see directly, but it is the lever that moves everything else. When the Fed raises this rate, banks' cost of borrowing goes up, so they raise the rates they offer on savings accounts to attract deposits. When the Fed cuts the rate, banks' borrowing costs fall, and they cut savings rates because they no longer need to compete as hard for your money.

The Fed meets eight times a year to decide whether to raise, cut, or hold its rate steady. Before each meeting, the Fed releases economic data—inflation numbers, employment reports, GDP growth—and the financial press speculates about what the Fed will do. After the meeting, the Fed announces its decision and explains its reasoning. You can read the Fed's statement on the Federal Reserve's website, and it will tell you whether rates are likely to move again soon.

The lag between a Fed rate change and a change in your savings account rate varies. Some online banks move within days. Others wait weeks. Traditional banks often wait longer because they are slower to adjust and because they rely more on checking account fees than deposit rates to make money. If you see a Fed rate cut announced but your bank's rate does not move for a month, that is normal.

Why online banks and credit unions pay more than traditional banks

Online banks have no physical branches, no tellers, and no building leases. Their overhead is a fraction of what a Chase or Bank of America spends. Because their costs are lower, they can afford to pass more of the Fed's rate increase to you. A traditional bank might raise its savings rate from 0.01% to 0.50% when the Fed raises rates; an online bank might raise from 4.00% to 4.75% in the same period.

Credit unions operate as member-owned cooperatives, not for-profit corporations. They are required to return profits to members, so they often offer higher rates on savings and lower rates on loans than banks do. Credit unions are also insured by the National Credit Union Administration (NCUA), which works the same way as the FDIC—your money is protected up to $250,000 per account.

The tradeoff is convenience. An online bank has no branch where you can walk in and deposit cash. A credit union may have fewer ATMs and branches than a big bank. If you rarely need to deposit cash or visit a branch, the higher rate makes up for the inconvenience. If you deposit cash weekly, a traditional bank with a branch near you may be worth the lower rate.

When savings rates are likely to fall

The Fed cuts rates when inflation is falling and the economy is slowing. Inflation has been cooling since mid-2023, and the Fed has signaled that rate cuts may come in 2024 if the trend continues. When cuts happen, savings rates fall faster than they rose. A rate that took three months to climb from 0.01% to 4.50% can drop from 4.50% to 2.00% in six weeks.

You cannot predict the Fed's exact moves, but you can watch the Fed's own forecasts. Four times a year, the Fed releases its Summary of Economic Projections, which includes the Fed's estimate of where rates will be at the end of the current year and the next two years. This is not a may provide, but it is the Fed's best guess based on current data. You can find it on the Federal Reserve's website under "Monetary Policy."

If the Fed's forecast shows rate cuts coming, it may be worth locking in a high rate now—but "locking in" is not always possible. Most savings accounts have no term; the bank can change your rate anytime. Some banks offer certificates of deposit (CDs), which lock in a rate for a fixed period (three months to five years). A CD pays a may provide rate, but you cannot withdraw the money early without a penalty. If you think rates are about to fall and you will not need the money for six months, a CD might make sense.

Why your bank's rate might not move even when the Fed moves

Banks do not have to raise savings rates when the Fed raises its rate. The Fed controls the rate banks charge each other; it does not control the rate banks pay you. Some banks raise rates to compete for deposits. Others raise rates on new accounts only, leaving existing customers at the old rate. Still others raise rates on money market accounts or CDs but leave savings account rates flat.

This is legal and common. A bank's decision to raise or hold rates depends on how much deposit money it needs. If a bank has plenty of deposits and does not need more, it has no reason to raise rates. If a bank is losing deposits to competitors, it will raise rates to keep customers. You have no way to know a bank's internal deposit situation, which is why shopping rates every few months is the only reliable strategy.

How to find the best rate right now

Savings rates change constantly, so a rate that was best last month may not be best this month. Websites like Bankrate, DepositAccounts, and NerdWallet list current rates from dozens of banks and credit unions, updated daily. You can filter by account type (savings, money market, CD) and term length (for CDs). These sites do not sell anything; they make money from bank advertising, so the rates are real and current.

When you find a rate you like, go directly to the bank's website to open the account. Do not open through a third-party site. The rate should be the same, but opening directly means you deal with the bank if something goes wrong. Make sure the bank is FDIC-insured (for banks) or NCUA-insured (for credit unions) before you deposit money. The insurance protects up to $250,000 per account type per institution.

If you have money in a savings account earning 0.01% at a traditional bank and you find an online bank offering 4.50%, moving the money takes about five minutes. You open an account online, provide your old bank's routing number and account number, and request a transfer. The money usually arrives within three to five business days. There is no penalty for moving money between banks.

What happens to your rate if you already have an account

If you opened a savings account at a bank six months ago, the rate you were promised then is not the rate you are earning now. Banks change rates on existing accounts without asking permission. You will see the new rate in your account statements or in an email notification, but you do not have to accept it. You can move your money to a different bank at any time.

Some banks notify you before a rate cut; others notify you after. Either way, you have the right to withdraw your money without penalty. If your bank cuts your rate and you find a better rate elsewhere, moving takes a few days and costs nothing. Banks count on inertia—most people do not bother to move—so they can afford to cut rates on existing customers while offering higher rates to new customers.

The only exception is a CD. If you bought a CD at 4.50% for one year, that rate is locked in for the full year, even if rates fall to 2.00%. You cannot change the rate, but you also cannot be forced out. When the CD matures, you can move the money to a new CD at whatever the current rate is, or move it to a savings account or a different bank.

Frequently Asked Questions

Will savings rates keep going up?

No. The Federal Reserve has signaled that rate cuts may come in 2024 if inflation continues to fall. When the Fed cuts rates, banks cut savings rates within weeks. Rates that are currently 4% to 5% could fall to 2% to 3% by late 2024 or early 2025. There is no way to know for certain, but the Fed's own forecasts suggest cuts are more likely than increases in the near term.

Should I move my money to an online bank right now?

If your current bank is paying less than 1% and online banks are paying 4% or more, moving takes five minutes and costs nothing. The only reason not to move is if you need to deposit cash regularly and have no online bank branch nearby. Otherwise, the difference in rate adds up quickly—$10,000 earning 0.01% makes $1 per year; the same $10,000 at 4.50% makes $450 per year.

What if I need the money before the CD matures?

You can withdraw it, but you will pay an early withdrawal penalty. The penalty varies by bank and CD term—it might be one month of interest or three months of interest. For a short-term CD (three to six months), the penalty might be small enough that moving the money early still makes sense if rates have fallen. For a long-term CD (three to five years), the penalty is usually large enough that you should only buy a CD if you are confident you will not need the money.

Is my money safe in an online bank?

Yes, as long as the bank is FDIC-insured. FDIC insurance protects up to $250,000 per account type per bank, whether the bank has branches or not. Online banks are regulated by the same agencies as traditional banks and must meet the same capital and safety requirements. The only difference is the lack of a physical branch, not the safety of your deposits.

How often should I check my savings rate?

Every three to six months is reasonable. Rates can change within weeks, so checking monthly is not necessary unless you are actively shopping for a new account. If the Fed announces a rate cut or raise, check within a week or two to see if your bank has moved. If your bank has not moved within a month of a Fed change, it is worth comparing to other banks.