A friend and I were recently talking about our savings goals. We both have the same savings account, so she alerted me that our rate had recently dropped. Life's been busy, and I hadn't looked at my account much in a couple of weeks, so I had no idea. Sure enough, the rate is now slightly lower than it's been for the past few months. While it's a bummer, I'm not too upset about this news. Despite the rate change, I plan to keep my savings in this account. I'll explain why.
I've continued to learn more as I write about finances
Each of us continues to acquire new knowledge every day. Throughout my career as a travel and personal finance writer, I've picked up knowledge that I've been able to apply to my personal life and I'm continuously learning more each day that I write.
While I've spent years prioritizing earning rewards from rewards credit cards, I had more work to do regarding my savings. I hadn't been paying close attention to my bank's annual percentage yield (APY) or the rate of return I could earn by keeping my money in the bank for a year. This is an important rate to know. I knew I needed to make changes to reach my savings goals sooner.
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So, in the summer of 2021, I opened a high-yield savings account with an online bank to earn more money from interest. My local brick-and-mortar bank offered a meager APY then, so I knew that transferring my savings to this type of bank account was the best move for my extra money.
The rate for my high-yield savings account has adjusted many times since I first opened it, but I'm happy that I'm earning extra cash while my money sits in the bank. Any additional income like this is a win because it can help me reach my personal finance goals.
Savings account rates can fluctuate
It's important to remember that the APY your savings account offers today may differ from what it offers in a few months or next year. That's because rates can change at any time.
Changes to the Federal Reserve's interest rate -- the rate at which banks and credit unions borrow and lend from and to each other -- can cause banks to adjust the rates they extend to consumers. The Fed has hiked the rate several times over the last year to combat inflation.
The rate hikes have benefited people with high-yield savings accounts. Many banks have hiked their rates for these accounts. However, lending rates for mortgages and auto loans have also increased, so there have been some wins and losses for consumers.
I'm still earning extra money
Until recently, my savings account's APY was 4.35% -- but now it's 4.25%. As a simple example, say I had $10,000 in my savings account earning an APY of 4.35%. At the end of one year, I'd have earned $435 in interest on my balance. The same $10,000 balance would earn $425 at the end of one year with an APY of 4.25%. A difference of $10 over a one-year period. That rate reduction isn't a big deal in the grand scheme of things. Now that I've built an emergency fund, which I stash in this bank account, I'm earning a sizable amount of extra income from interest, despite the small rate decrease.
I'm also happy with my current bank and the features of my bank account. At this point, it's not worth the extra effort to transfer my money elsewhere. If my bank continues to lower its rates while others maintain higher rates, I may reconsider and move my money. But for the time being, I'll keep contributing to my savings fund and watch my balance grow.
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FAQs
That's because rates can change at any time. Changes to the Federal Reserve's interest rate -- the rate at which banks and credit unions borrow and lend from and to each other -- can cause banks to adjust the rates they extend to consumers.
Why did my APY go down? ›
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.
Why am I getting less interest on my savings account? ›
If banks want to decrease deposits, then they will lower interest rates. Many of the large banks currently have sufficient capital and are not actively seeking additional deposits. Until demand for loans picks up and banks see a need for more deposits, interest rates will continue to stay low.
Can you lose money on APY? ›
The fluctuating APY won't cause your balance to decrease, but it will affect your interest income. For example, if you had $10,000 in a savings account that earns 5.00% APY, you'd earn $500 after one year. But if your account's APY dropped to 3.00% APY, your annual interest earnings would drop to $300.
Why does APY change? ›
In a higher rate environment, banks raise annual percentage yields on savings accounts to attract new customers. This puts competitive pressure on other institutions to increase their rates. If one bank starts, others are likely to follow. Without a federal funds rate increase, banks may not make big APY moves.
What is 5% APY on $1000? ›
To find what the APY is on investments, multiply the annual interest rate by the number of times interest is made in a year and then divide that number by one. For example, $1,000 put into an account with an annual interest rate of 5% would, in theory, earn $50 at the end of the year.
Can you lose money in a high-yield savings account? ›
Safety: As noted, most high-yield savings accounts are either FDIC or NCUA insured for up to $250,000. Moreover, as deposit accounts, they're not susceptible to the ebbs and flows of the market, so there's little to no chance you'll lose the money you deposit into one.
Is APY good or bad? ›
Is APR or APY better? APR measures how much interest you'll pay to borrow money; APY measures how much interest you can earn on deposits. A lower APR is better for borrowers, but a higher APY is better for savers.
How often does APY change? ›
Interest rates on high-yield savings accounts are variable and can change at any time. More specifically, rates typically change after a Federal Reserve committee meets to adjust the federal funds rate. The account's annual percentage yield (APY) determines how much interest you earn on your money each year.
Which bank gives 7% interest on savings accounts? ›
As of May 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
What is a good APY? The national average savings rate is 0.46% APY, but you can find rates higher than that. Some of the best savings rates come from online banks and are around 4.00% or higher.
Can APY rates change? ›
APY = Annual Percentage Yield. APYs are subject to change at any time without notice. Banks can change their savings account APYs at any time. APY isn't the only thing that matters when selecting a savings account.
Why should a person use APY instead of interest? ›
Both APY and APR are calculated based on interest rates, but they have additional factors, too. APYs give you the most accurate idea of an account's earning potential, while APRs give an idea of what you could owe. Since both are shown over a single year, they are more accurate than interest rate alone.
Should I move all my savings to a high-yield savings account? ›
The bottom line is that it's wise to keep a meaningful amount of money in a high-yield savings account, but these accounts aren't the best place for most people to store 100% of their idle cash.
Do I earn APY every month? ›
Is APY monthly or yearly? APY is the percentage rate of return on your money over one year, and it includes compound interest. The interest may be compounded daily, monthly, or yearly, depending on the deposit account.
Is 5% APY possible? ›
This means a savings account paying 5% APY allows you to earn 5% on money kept in the account over the course of a year. We've compiled a list of banks and credit unions where you can find savings accounts that pay at least 5% APY.
How good is 5% APY? ›
If you deposited $100 for one year at 5% interest and your deposit was compounded quarterly, at the end of the year you would have $105.09. If you had been paid simple interest, you would have had $105. It pays 5% a year interest compounded quarterly, and that adds up to 5.095%. That's not too dramatic.
Is it possible for APY to be less than APR? ›
The term APR relates to the cost of credit, not to interest on a deposit account. Your question is rephrased as "Is it possible for the annual percentage yield (APY) on a certificate of deposit (CD) to be lower than the interest rate?" The answer is yes, but it only occurs in cases such as the one you've described.
Is 4.6 APY good? ›
SoFi savings account interest rate
It has a variable annual percentage yield (APY) of up to 4.6%, which is approximately 10 times the national average for savings accounts.
