Here's why the interest rate on your high-yield savings account goes up and down (2024)

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.

If you're looking to maximize your savings, now's the time to pay attention to where your cash is stashed. These days, savers can earn an APY around 5%.

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, CNBC Select explains in-depth why your APY changes and what that means when you're deciding whether to put your money into a high-yield savings account.

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.

You can look at the current market conditions as an example: The federal funds rate has gone from 0.25% in March 2022 to what is currently 4.75%. Many banks have reacted by raising the rates they offer to their customers, leaving savings account holders with a higher return on their cash.

Even while banks can lower or raise APYs, a high-yield savings account is still a good place to put your money.

The national average APY on regular savings accounts is just 0.35%, according to the Federal Deposit Insurance Corporation (FDIC). That's over 14 times less than what the highest-yield savings accounts currently offer.

If you're looking to maximize your savings, consider transferring your money to one of CNBC Select's best high-yield savings accounts:

• Best overall:LendingClub High-Yield Savings
• Best for earning high APY:UFB Preferred Savings(previously known as UFB Best Savings)
• Best for no fees:Marcus by Goldman Sachs High Yield Online Savings
• Best for checking/savings combo:Ally Online Savings Account
• Best for easy access to your cash:Synchrony Bank High Yield Savings
• Best for earning airline miles:Bask Bank Mileage Savings Account
• Best for welcome bonus:SoFi Checking and Savings
• Bestifyouwantextrahelpsaving:Varo Savings Account

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