Save and Invest

Here's how the Fed's rate cut will affect your high-yield savings account

Federal Reserve Board Chairman Jerome Powell testifies before the Senate Committee on Banking, Housing, and Urban Affairs on Capitol Hill in Washington, DC, on February 26, 2019.
Jim Watson | AFP | Getty Images

The Federal Reserve cut interest rates on Wednesday for the first time since 2008. And while that may be good news for those looking to take out a loan or manage their credit card debt, it could mean the interest rates on high-yield savings accounts take a hit.

The central bank cut its benchmark short-term interest rate by a quarter of a point, from 2.25% to 2%. While the Fed's Open Market Committee called the U.S. labor market "solid" and economic activity "moderate," the central bank decided to cut rates in "light of the implications of global developments for the economic outlook as well as muted inflation pressures."

Prior to the Fed cutting rates on Wednesday, the average interest rate among online banks was 1.69%, as opposed to an average of 0.28% offered by brick-and-mortar banks. That's according to an analysis of savings accounts conducted by in June.

Yet robo-advisors have also started offering savings options — and their interest rates beat even the online banks. Wealthfront currently offers a cash account with an APY of 2.57%, while Betterment rolled out a similar account last week where consumers can get up to 2.69% in interest.

While the rate cut will likely help consumers with high credit card debt by lowering the interest rates, it's not great for those who are using a high-yield savings account. "The only real losers in all of this are people with online-only savings accounts," WalletHub CEO Odysseas Papadimitriou tells CNBC Make It. He says interest on these accounts are expected to drop by about 0.11%.

Yet major online banks already started dropping their rates in June. Ally Bank's online savings account APY fell from 2.20% to 2.10%, while Marcus by Goldman Sachs lowered its savings account rate from 2.25% to 2.15%.

And while the robo-advisors haven't dropped rates yet, customers will likely see a dip following Wednesday's Fed announcement. In a blog post published last month, Wealthfront co-founder Andy Rachleff noted that he expects the Fed rate cut to affect the company's savings option. "If the rate is lowered by 0.25%, then we will have to lower the rate for our cash account by the same amount." But he added that while most banks will lower interest rates by more than the Fed rate decrease, Wealthfront will avoid this practice.

Betterment's interest rate will also move in a similar direction to the Fed rate — although customers who signed up for the Everyday Checking account waitlist will see a higher rate than those who opted out. The current, non-promotional variable rate for the Betterment Everyday Savings is 2.43% APY. "The very structure of the account is that the [interest] rate floats with Fed funds," Adam Grealish, Betterment's director of investing, tells CNBC Make It.

Ken Tumin, founder of DepositAccounts tells CNBC Make It expects banks like Ally and Marcus will actually cut interest rates up to an additional 0.15%. "I think banks are careful to spread out the cuts so they're not so obvious. That may be why they began cutting last month," he adds.

In a statement to CNBC Make It, Ally Bank said Wednesday it "continually monitors market conditions, including the health of the economy, the current federal funds rate, the competitive environment and more when determining interest rates on deposit products." Marcus did not immediately respond to request for comment on its savings account interest rates.

While the Fed cut may result in lower interest rates, most Americans aren't even using these kinds of high-yield accounts. Just 14% of Americans have a savings account that pays more than 2% APY, according to a Bankrate survey. In fact, nearly a quarter of Americans say they're not earning any interest on their savings.

That means too many Americans are leaving money on the table. Let's say you have $1,000 in your savings account at a brick-and-mortar bank earning the average interest. After five years, you'd earn about $14. But if you save your money in an online savings account that earned just 2% APY, you'd have $104 at the end of five years.

And the bigger your balance, the more it adds up.

When it comes to your savings account, "you should be looking to get the highest yield you can on it," Grealish says.

Editor's Note: This article has been updated to include clarification from Betterment around its promotional savings account interest rates.

Don't miss: Here's what to know before signing up for a high-yield savings account at a robo-advisor

Like this story? Subscribe to CNBC Make It on YouTube!

Invest first or save? Here's how to use your money, says Ramit Sethi