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How are high-yield savings account rates determined?

The Federal Reserve plays an important role in determining the interest rates high-yield savings accounts offer. Getty Images/iStockphoto

Savings are critical for safeguarding your financial future. With a healthy amount of savings, you can be better prepared to handle everything from major purchases to emergencies. And by earning interest on your savings, you can watch your balance grow without any action on your part.

High-yield savings accounts enable your savings to grow faster with interest rates that can be 12 times higher than those offered by regular savings accounts. But these rates change over time, and they also vary from bank to bank and product to product. Knowing where they currently stand can help you maximize your earning potential.

Below, we'll break down how interest rates are determined and how to score the best rate.

See what today's savings rates are here and start earning more interest now.

How are high-yield savings account rates determined?

Savings account rates are variable, which means the amount of interest you earn will fluctuate over time. These are the main factors that affect the annual percentage yield (APY) high-yield savings accounts offer.

Federal interest rates

The Federal Reserve plays an important role in determining the interest rates offered by high-yield savings accounts. As the central bank of the United States, the Federal Reserve employs monetary policy to influence interest rates to combat things like inflation.

Whenever the Federal Reserve announces a change in interest rates, it affects how much banks and other financial institutions can earn from lending out money. So, they adjust the rates they offer to maximize their cash flow and increase their reserves with cash deposits. 

How much interest could your savings be earning? View the most up-to-date rates here to find out.

Competition among banks

Competition within the financial industry can also influence the interest rates on high-yield savings accounts. Banks and credit unions are constantly competing for customers and their deposits. Therefore, they may offer higher interest rates to attract new customers. The more competition there is, the higher these interest rates are likely to be.

See what banks are offering you for your business! View your options here.

How to get the best rate on a high-yield savings account

In addition to choosing a high-yield savings account rather than a regular one, you can take these steps to get the highest rate currently available:

  • Shop around: Banks offer everything from higher rates to promotions like cash bonuses to make their high-yield savings accounts stand out. Don't just settle for the first account you come across. Research your options to find the best deal you can, whether it's with your current bank or a competitor.
  • Look into fees: Maintenance fees, minimum balance requirements and withdrawal limits can eat into your savings, offsetting the benefit you get from a higher APY. Look for accounts with few or no fees to keep more of your hard-earned money.
  • Compare features: Interest rates aren't the only factor that determines whether a high-yield savings account is right for you. To get the most out of an account, take a look at the features it offers. For example, a bank with an extensive ATM network and no ATM charges could save you time and hassle if you need to withdraw funds. This doesn't affect your earnings, but it's still worth considering.
  • Consider an online bank: Many high-yield savings accounts are offered by online banks. Because these banks don't have the overhead costs associated with physical branches, they're often able to provide higher rates and better terms than traditional banks. And with features like 24/7 account access and mobile check deposit, they're often more convenient, too.

Find the best savings rates on the market today by comparing your options here.

The bottom line

Understanding how high-yield savings account rates are determined can help you make an informed decision about the account that's right for you. In addition, reviewing your options, evaluating fees and features and opting for an online bank can help you get the most for your money, whatever interest rates are currently. You owe it to yourself to maximize your savings now and set yourself up for a brighter financial future.

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