After two years of high interest rates, the Fed is finally expected to lower interest rates. While that's a welcome relief for anyone borrowing money, it also means your savings account may start earning less.
The Fed has held rates steady for eight consecutive times now. But at last month's economic symposium, Fed Chair Jerome Powell said the time has come to adjust this policy.
On the heels of the latest jobs and inflation reports, experts are aligned that the Fed will lower rates on Sept 18. If you're currently earning high savings rates of 4% to 5%, it's likely your bank will lower the interest rate on your savings account after the Fed meeting, said Danielle Flores, a personal finance expert and founder of I Like to Dabble.
But how soon after? And how much will your rate drop? Here's what Flores expects and what you should do if you're worried about your savings.
Why haven't banks dropped savings rates already?
Banks have been quietly lowering savings rates all year, but the dips were fairly minor. In January, the average high-yield savings account was 4.89% annual percentage yield versus this week's average of 4.80%, according to the banks that CNET tracks.
These dips have been negligible though for a few reasons. First, most banks keep savings rates in line with the Fed's decisions. Think back to last year, when experts predicted savings rates would fall last year, but banks held steady. Secondly, banks may also keep savings rates high to stay competitive and attract new customers.
Expect savings rate drops later this fall
Now that a rate cut is all but guaranteed, it's likely that your savings account interest rate will decrease following the Fed meeting. Flores said it could take weeks or months, depending on the bank's policies, competitive strategies and operational needs, but it's likely many banks will lower rates in September.
How much will rates drop? That depends on how much the Fed lowers rates. If the Fed lowers rates by 50 basis points, expect a similar drop in your interest rate. For example, if you have a 4.25% annual percentage yield, your savings account interest rate is likely to fall to between 4% and 3.75%, depending on the bank, Flores said.
It's possible that a bank will decrease savings account rates by more than this, but Flores thinks initial cuts will be small.
Here's what you would earn on your savings if rates drop by 1%
Even if rates were to drop by a full percentage point, the difference in interest earnings would be relatively small, unless you have hundreds of thousands stashed away.
Let's say you had $1,000 in a high-yield savings account earning 4.5% APY. Without making any additional contributions, you would have earned about $45 at the end of the year, assuming your rate stayed the same. If your savings rate had been 1% lower you'd have earned only $35. Yes, you earn less from interest, but not by much.
| APY | Interest earned | Balance |
| 4.5% | $45 | $1,045 |
| 3.5% | $35 | $1,035 |
Even if rates fall even further and your savings account interest rate decreases more, remember there are still other benefits in exchange for keeping your cash stashed in the account.
What can you do to protect your savings?
If you're holding your emergency fund or other short-term savings in a high-yield savings account, you'll still be earning more interest than most traditional savings accounts, even after savings rates drop. Here are some tips to keep in mind if you're worried about your savings.
1. Remember the main benefit of your savings account
Earning a competitive APY is great when you're building your savings, but the ability to have money on hand in case of an emergency or to pay for holiday gifts without turning to debt is the real benefit, experts say.
Interest is the icing on top of the cake, so to speak. It's a good idea to look for competitive savings rates, but it's more important to find a bank that has no fees and the access you need to your money. Most transfers to and from high-yield savings accounts are instant, especially when the other account is with the same bank. That quick access can come in handy when you need your money in a pinch.
2. Explore other ways to earn interest
If you're worried about your high-yield savings account rate falling, there may be other ways to earn interest on your everyday funds that you're not already taking advantage of. Fingal recommends considering an interest-earning checking account.
“Rewards checking accounts may earn cash back on things you buy with your debit card,” Fingal says. “People who make frequent purchases using a debit card would benefit most from this type of checking account.”
The interest rates aren't usually as high as high-yield savings accounts -- but if you're currently earning 0% on your checking, it's a net benefit. For example, Charles Schwab, CNET's editor's choice winner for best checking account, offers 0.45% APY on your account balance.
If you have savings that you don't plan on touching for several years, you might consider moving the money to a certificate of deposit so you can lock in a high rate before rates dip. Based on our tracking, a five-year CD currently has a 3.71% APY, but if you're looking for a shorter term, the three-year CD average is slightly higher -- 3.82%.
Read more: Protect Your Earnings Now With These Top CDs
3. Shop other banks
If you're looking for the highest savings rate to maximize interest while there's still time, Fingal says to keep an eye out for offers from other banks.
"Banks can be competitive and we as the end user can benefit," Fingal said. "Consider switching banks if the rate is worth it." Just watch out for any bank fees and make sure the bank account meets all of your needs and makes it easy to access your money.
