How the Federal Reserve can impact your savings account’s interest rate

When the Federal Reserve hikes or cuts the federal funds rate, interest rates on many types of financial products tend to increase or decrease accordingly. This includes savings accounts, where a higher federal funds rate often means consumers can expect to earn a higher annual percentage yield (APY) on their savings. But, the Fed does not directly set savings account rates. Read on and we’ll explain how what the Fed does can impact your bank accounts.

Are high-yield savings rates expected to change?

The interest rates offered on high-yield savings accounts—or any savings account—can change at any time, as these rates are at the discretion of the financial institutions. Still, as of this writing, it’s possible to find HYSAs offering APYs over 4.00%. If the Fed makes further cuts to the federal funds rate in 2026, it’s possible that savings account rates will also see a decline.

Learn more:What APY means and how it works. 

Consumers looking for a guaranteed rate of return that won’t be impacted by Fed decisions may wish to open CD accounts sooner rather than later. More on that later in the article.

What is the federal funds rate?

As explained by the Fed itself, the federal funds rate is what banks charge each other when they need to borrow money overnight. The Federal Open Market Committee (FOMC) holds eight meetings per year and has the authority to raise, lower, or hold steady on the federal funds rate at these meetings.

At the most recent FOMC meeting on December 10, 2025, the Fed cut the federal funds rate to 3.50%-3.75%, writing in a statement, “Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.”

Dropping the federal funds rate is one of the Fed’s tools to stimulate the economy when there’s fear of a recession. For example, the Fed cut this rate to effectively zero during the coronavirus pandemic. In contrast, hiking the rate is one of the Fed’s tools for combating inflation.

Post-pandemic, the central bank hiked the federal funds rate 11 times in 2022 and 2023, then paused and held steady for more than a year before finally making three rate cuts in the last quarter of 2024.

The cut at the December meeting is the third of 2025.

How Fed rate cuts and hikes can impact your savings rate

Even though the Federal Reserve does not set APYs on savings accounts, it’s true that banks and credit unions may increase or decrease the rates they offer when the Fed adjusts the federal funds rate. For that reason, a higher federal funds rate may benefit your savings account, and conversely, a lower federal funds rate is likely better for those who need to borrow money through products such as mortgages.

Below, you can see how the Fed rate cuts in 2024 led many institutions to lower their rates on savings accounts. These levels are likely to stay fairly steady until we see further interest rate changes, but there are no guarantees on how long the rates will last. Savings account rates can change any time, at the discretion of the bank.

How to maximize the interest you earn on your savings

The average savings account yields 0.40% as of November 2025, according to the FDIC—down from 0.46% last summer. That’s less than ideal, but it’s important to understand the average is weighed down by the majority of accounts that offer little to no return on your deposits.

You can get a much better rate by shopping around for a high-yield savings account. In general, you’ll often be able to find higher interest rates for online-only savings accounts as opposed to savings accounts at institutions with brick-and-mortar branches.

The business scoop

When the Federal Reserve hikes the federal funds rate, businesses as well as individuals feel the squeeze. Not only does it tend to get more expensive to borrow with loans and on small business credit cards, but consumers may pull back on discretionary spending as more of their budget goes toward paying off debt.

What about CDs and other bank accounts?

The federal funds rate can have an indirect effect on your certificates of deposit (CDs) and other types of financial accounts in much the same way it can impact your savings. Here’s what you need to know.

Certificates of deposit

This type of deposit account is probably where we’ve seen the most impact so far. Top rates on certificates of deposit dropped from nearly 6% in the summer of 2024, to below 5% in January 2025. Those rates will likely continue to come down if the Fed makes further cuts.

The upside of a CD, though, is that you’re locked into that interest rate for the full length of the term. That means if you get a 4.50% CD now that lasts two years, you’re guaranteed that rate of return for the whole two years regardless of what happens to the fed funds rate in the meantime.

Money market accounts

These types of deposit accounts function similarly to checking accounts, with much higher yields but lower rates than HYSAs. They’re good for stashing large amounts of cash you don’t use often but would want to be able to access quickly in case of emergency. Much like savings accounts, you’ll almost certainly see an impact on these rates that correlates with shifts in the market.

Read more:The best money market accounts of December 2025

Checking accounts

Reality check: Considering how low most rates are, any interest you might earn on a checking account is icing on the cake and not the sole focus. Fed policy changes have a negligible impact on checking accounts but considering how low the APYs are already, it’s not a significant concern.

The takeaway

The Federal Reserve doesn’t directly set the interest rate you earn on your savings account or other bank accounts, but the central bank’s actions can still influence your APY. That’s because rates on financial products often rise and fall in tandem with the Fed hiking or cutting its benchmark federal funds rate. In short, the Fed cutting rates can mean a lower yield for your savings. 

Stashing your money in CDs can be a smart way to get ahead of expected Fed rate cuts, as once you open a CD, you’re guaranteed a set interest rate for the life of the account. Just know your money isn’t very liquid when saved this way, as you’re required to leave CD funds untouched for an agreed-upon period of time—often ranging from three months to five years.

Purchasing government bonds is another alternative to keeping your money in a savings account. Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting, notes that consumers may appreciate bonds for the stability they provide.

“In terms of safety and security, U.S. Treasury bills and bonds are going to offer you safety, and you don’t have to worry about defaulting,” Snaith says. “But make sure to shop around at different financial institutions, banks, or credit unions for your best options.”