Editor's Note: APYs listed in this article are up-to-date as of the time of publication. They may fluctuate (up or down) as the Fed rate changes. CNBC Select will update as changes are made public.
A savings account's annual percentage yield, or APY, determines the amount of interest an account holder earns in a year. This is an important number to look at when choosing a high-yield savings account. The higher the account's APY, the faster one's savings will grow. Yet the percentage is always fluctuating.
The APY on a savings account is variable. This means that an account's APY can go up when the economy is doing well and the Federal Reserve raises interest rates, and it can likewise drop when the economy weakens and the Fed lowers interest rates.
Below, we explain why your APY changes and what that means when you're deciding whether to put your money into a high-yield savings account.
Why your APY goes up and down
Though it's important to consider the APY when choosing a high-yield savings account, the rate you sign up for is not guaranteed forever. In fact, APYs are subject to change without notice, as they often fluctuate in accordance with the Fed rate.
When the economy is facing a downturn, the Fed will sometimes lower interest rates to make it cheaper for consumers to borrow or invest their money. This encourages people to take out loans and spend more money, which, in theory, stimulates the economy. Large transactions, such as buying a home or taking out a business loan, become more affordable because interest rates are lower. Consumers will be more willing to spend and ultimately cash will flow back into the economy.
While lowering interest rates is good for borrowers, it's not so good for savers. Banks also use the Fed rate as a benchmark for savings account yields. When the Fed rate decreases, the interest rate on your high-yield savings account will also likely decrease.
But when the economy is booming, the opposite happens. That's why, in the long run, a high-yield savings account is a good idea no matter what. The Fed will often raise interest rates in a strong market to stabilize borrowing and spending, which makes credit more expensive but gives savings accounts an added edge. Banks often increase savings yields in a strong market, giving you a more lucrative place to stash your money.
Why a high-yield savings account is always a good idea
Even while banks can lower or raise APYs, a high-yield savings account is still a good place to put your money.
If you want to maximize your savings, the Western Alliance Bank High-Yield Savings Account earns a solid rate and requires just a $1 minimum deposit to open. There's no cap to earning its high APY and it also comes with no monthly fees.
Western Alliance Bank High-Yield Savings Account
Annual Percentage Yield (APY)
3.80% APY
Minimum balance
$1 minimum deposit
Monthly fee
None
Maximum transactions
Up to 6 transactions each month
Excessive transactions fee
The bank may charge fees for non-sufficient funds
Overdraft fee
No overdraft fee
Offer checking account?
No
Offer ATM card?
No
Terms apply.
Pros
- Earns a strong APY with no caps, so every dollar in your account is earning the full rate regardless of your balance.
- Minimum opening deposit of just $1.
- No monthly fees and no overdraft fees, so nothing is cutting into your earnings.
Cons
- No checking account or ATM access, so this works best as a dedicated savings account paired with another bank.
- Non-sufficient funds fees may apply, so it’s worth keeping an eye on your balance before making transfers.
The EverBank Performance℠ Savings also offers a competitive rate, along with no monthly fees or minimum balance requirements. It also offers a free ATM card and never charges any ATM fees.
EverBank Performance℠ Savings
Annual Percentage Yield (APY)
3.90% APY
Minimum balance
None
Monthly fee
None
Maximum transactions
Up to 20 external transfers per day, with a maximum of 10 transfers from a linked external account into your EverBank accounts and 10 transfers from EverBank to external accounts. Up to 50 total external transfers per month.
Excessive transactions fee
None
Overdraft fees
N/A
Checking account
Yes
ATM card
Yes
Terms apply.
Pros
- Earns a competitive APY with no minimum balance.
- Free ATM card and no ATM fees
Cons
- Limited branch locations
FAQs
How often do high-yield savings account rates change
High-yield savings account rates can change at any time, often adjusting in response to shifts in the federal funds rate or broader economic conditions.
Should you switch banks if your high-yield savings account rate drops?
If your high-yield savings account rate drops significantly and better rates are available elsewhere, it can be smart to switch but be sure to also consider other factors like account features, fees and convenience before moving.
How does the Fed rate cut impact savings accounts?
When the Federal Reserve cuts rates, banks often lower high-yield savings account rates too, meaning you'll likely earn less interest on your savings.
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