How the Federal Reserve can impact your savings account’s interest rate
Here’s what hikes and cuts to the federal funds rate can mean for your savings account’s APY.
When the Federal Reserve hikes or cuts the federal funds rate, interest rates on many types of financial products tend to increase or decrease accordingly. This includes savings accounts, where a higher federal funds rate often means consumers can expect to earn a higher annual percentage yield (APY) on their savings. But, the Fed does not directly set savings account rates. Read on and we’ll explain how what the Fed does can impact your bank accounts.
Are high-yield savings rates expected to change?
The interest rates offered on high-yield savings accounts—or any savings account—can change at any time, as these rates are at the discretion of the financial institutions. Still, as of this writing, it’s possible to find HYSAs offering APYs up to 5%. If the Fed makes further cuts to the federal funds rate later this year, it’s possible savings account rates will also see a decline.
Learn more: What APY means and how it works.
Consumers looking for a guaranteed rate of return that won’t be impacted by Fed decisions may wish to open CD accounts sooner rather than later. More on that later in the article.
Featured Partners
 Varo Bank |  SoFi® Checking and Savings (Member FDIC) |  Axos Bank |
|---|---|---|
| APY | APY | APY |
| 5% | Up to 3.80%1 | 4.86% |
| Minimum Balance Required to Earn APY | Minimum Balance Required to Earn APY | Minimum Balance Required to Earn APY |
| $0 | $5,0002 | $1,500 |
| Minimum Opening Deposit | Minimum Opening Deposit | Minimum Opening Deposit |
| $1 | $0 | $1 |
| View offer at MoneyLion | View offer at SoFi | View offer at Axos Bank |
What is the federal funds rate?
As explained by the Fed itself, the federal funds rate is what banks charge each other when they need to borrow money overnight. Right now, the target range for the federal funds rate is 4.25%-4.50%. The Federal Open Market Committee (FOMC) holds eight meetings per year and has the authority to raise, lower, or hold steady on the federal funds rate at these meetings. At the most recent FOMC meeting in March, the Fed opted to keep the federal funds rate unchanged.
Dropping the federal funds rate is one of the Fed’s tools to stimulate the economy when there’s fear of a recession. For example, the Fed cut this rate to effectively zero during the coronavirus pandemic. In contrast, hiking the rate is one of the Fed’s tools for combating inflation.
Post-pandemic, the central bank hiked the federal funds rate 11 times in 2022 and 2023, then paused and held steady for more than a year before finally making three rate cuts in the last quarter of 2024.
How Fed rate cuts and hikes can impact your savings rate
Even though the Federal Reserve does not set APYs on savings accounts, it’s true that banks and credit unions may increase or decrease the rates they offer when the Fed adjusts the federal funds rate. For that reason, a higher federal funds rate may benefit your savings account, and conversely, a lower federal funds rate is likely better for those who need to borrow money through products such as mortgages.
Below, you can see how the Fed rate cuts in 2024 led many institutions to lower their rates on savings accounts. These levels are likely to stay fairly steady until we see further interest rate changes, but there are no guarantees on how long the rates will last. Savings account rates can change any time, at the discretion of the bank.
View this interactive chart on Fortune.com
How to maximize the interest you earn on your savings
The average savings account yields 0.41%, according to the FDIC— and that’s down from 0.46% last summer. That’s a pretty terrible return, but it’s important to understand the average is weighed down by the majority of accounts that offer little to no return on your deposits.
You can get a much better rate by shopping around for a high-yield savings account. In general, you’ll often be able to find higher interest rates for online-only savings accounts as opposed to savings accounts at institutions with brick-and-mortar branches.
What about CDs and other bank accounts?
The federal funds rate can have an indirect effect on your certificates of deposit (CDs) and other types of financial accounts in much the same way it can impact your savings. Here’s what you need to know.
Certificates of deposit
This type of deposit account is probably where we’ve seen the most impact so far. Top rates on certificates of deposit dropped from nearly 6% in the summer of 2024, to below 5% in January 2025. Those rates will likely continue to come down if the Fed makes further cuts.
The best thing about a CD, though, is that you’re locked into that interest rate for the full length of the term. That means if you get a 4.50% CD now that lasts two years, you’re guaranteed that rate of return for the whole two years regardless of what happens to the fed funds rate in the meantime.
View this interactive chart on Fortune.com
Money market accounts
These types of deposit accounts function similarly to checking accounts, with much higher yields but lower rates than HYSAs. They’re good for stashing large amounts of cash you don’t use often but would want to be able to access quickly in case of emergency. Much like savings accounts, you’ll almost certainly see an impact on these rates that correlates with shifts in the market.
Checking accounts
Reality check: Considering how low most rates are, any interest you might earn on a checking account is icing on the cake and not the sole focus. Fed policy changes have a negligible impact on checking accounts but considering how low the APYs are already, it’s not a significant concern.
The takeaway
The Federal Reserve doesn’t directly set the interest rate you earn on your savings account or other bank accounts, but the central bank’s actions can still influence your APY. That’s because rates on financial products often rise and fall in tandem with the Fed hiking or cutting its benchmark federal funds rate. In short, the Fed cutting rates can mean a lower yield for your savings.
Stashing your money in CDs can be a smart way to get ahead of expected Fed rate cuts, as once you open a CD, you’re guaranteed a set interest rate for the life of the account. Just know your money isn’t very liquid when saved this way, as you’re required to leave CD funds untouched for an agreed-upon period of time—often ranging from three months to five years.
Purchasing government bonds is another alternative to keeping your money in a savings account. Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting, notes that consumers may appreciate bonds for the stability they provide.
“In terms of safety and security, U.S. Treasury bills and bonds are going to offer you safety, and you don’t have to worry about defaulting,” Snaith says. “But make sure to shop around at different financial institutions, banks, or credit unions for your best options.”
1
SoFi members who enroll in SoFi Plus with Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi Plus members are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. See the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
2
New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/26. See full bonus and annual percentage yield (APY) terms at sofi.com/banking#1.
This story was originally featured on Fortune.com
