The rate on my savings account just dropped. Here’s why I’m not worried

Last month, the Federal Reserve cut the federal funds rate by half a percentage point. This benchmark rate is now 4.75% to 5.00%. When the federal funds rate changes, credit unions and banks tend to make adjustments to consumer product interest rates.

As you might expect, many banks have recently reduced rates on interest-earning accounts, such as money market accounts and high-yield savings accounts (HYSAs). My own bank recently lowered the rate on my HYSA. Here’s why I’m not too upset about this change.

My HYSA APY went from 4.20% to 4.00%

Knowing the Annual Percentage Rate (APY) of your bank accounts is essential. The APY is how much you can expect to earn by keeping your cash in the bank for a year.

Knowing this rate can help you make informed decisions about your money, such as deciding whether to transfer your money to a different account with a higher APY to maximize the interest you earn or keep it where it is.

Our picks for the best high-yield savings accounts of 2024

American Express® High Yield Savings APY 4.10% Fee information Circle the letter I. Annual percentage yield of 4.10% to October 14, 2024 Member of the FDIC.	APY 4.10% Fee information Circle the letter I. Annual percentage yield of 4.10% to October 14, 2024	Min. to win $0
Capital One 360 ​​Performance Savings APY 4.10% Fee information Circle the letter I. Check the Capital One website for the most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of September 27, 2024. Rates are subject to change at any time before or after account opening. Member of the FDIC.	APY 4.10% Fee information Circle the letter I. Check the Capital One website for the most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of September 27, 2024. Rates are subject to change at any time before or after account opening.	Min. to win $0
CIT Platinum Savings APY 4.70% APY on balances of $5,000 or more Fee information Circle the letter I. 4.70% APY on balances of $5,000 or more; otherwise, 0.25% APY Min. to win $100 to open an account, $5,000 for max APY Member of the FDIC.	APY 4.70% APY on balances of $5,000 or more Fee information Circle the letter I. 4.70% APY on balances of $5,000 or more; otherwise, 0.25% APY	Min. to win $100 to open an account, $5,000 for max APY

The APY on my HYSA recently dropped from 4.20% to 4.00%. Although the rate is lower, it is not a significant reduction. The difference in interest I’ll earn isn’t enough to justify moving my savings elsewhere, so I’m not worried about this change and my money stays.

Let’s explore some hypothetical scenarios to illustrate how a 0.20% rate change like this affects your earnings:

Data source: Author’s calculations.

As you can see, the difference in earnings is not big enough for me to feel the need to make drastic money moves. Plus, the rate is on par with what many other online banks are now offering.

If you don’t have a HYSA, now is still a good time to open one. You can reach your savings goals sooner by earning interest.

Ready to get rewarded for saving? Explore our list of the best high-yield savings accounts to find the right one for you.

Savers can earn more with HYSAs

Although rates change, HYSAs are still excellent financial vehicles for storing savings. Many financial institutions, such as national and regional banks, offer much lower APYs for savings accounts.

According to the FDIC, the national average for savings accounts is currently 0.46%. That’s a big difference compared to the 4.00% my bank is offering me now.

If you keep your savings in your checking or savings account with a low APY, now is a good time to open a HYSA. By transferring your money to an account with a higher APY, you can maximize the interest you earn.

Don’t let interest rate cuts get you down

For some, interest rate cuts are good news. Lower rates are beneficial if you are applying for a car loan or mortgage. However, for savers, lower interest rates mean less interest earned on their savings.

But slight rate reductions won’t significantly affect your savings. If you have a HYSA, you’ll continue to earn more interest than you would with the average savings account. Don’t let an interest rate cut get to you. Instead, focus on the long term as you continue to work hard toward your financial goals.