Is Your Savings Account APY Falling? Here's Why You Shouldn't Panic

After many months of speculation, it finally happened: The Federal Reserve lowered its benchmark interest rate by half a percentage point on Sept. 18. This rate isn't the same as rates on consumer bank accounts, like CDs, savings, and money market accounts, but they do tend to move in concert.

Diligent savers will soon see the APY on their savings accounts fall, if it hasn't already. Is this a moment to panic? Nope. Here's how opting for the right kind of savings account and not overfunding it can help you breathe easier.

Opt for an online savings account

If you want to ensure you're earning a good rate, no matter the macroeconomic factors at play, you need to look online. Check out our picks for the best online high-yield savings accounts and watch your money grow with a higher APY than average -- and much higher than what big brick-and-mortar banks pay.

Why do online HYSAs pay so much better? It comes down to overhead costs. When a bank exists solely in cyberspace, it doesn't have to maintain and staff physical bank branches. In exchange, you get to enjoy higher interest rates on your saved cash, a lack of pesky account maintenance fees, and stellar mobile apps that make managing your money easier.

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

My own online high-yield savings account has already seen its first post-Federal Reserve rate cut drop to its APY -- but the money I keep in it is still earning 4.00% APY. That's far above the average rate across all banks (0.42%), and also beats my savings accounts with a big national bank and the tiny local credit union where I have my mortgage.

Don't overfund your savings account

The other way to cope with falling savings account APYs without much worry is to ensure your saved cash is in the right places to match your goals. Ideally, your savings account is best used for money you need in the short term (such as savings for a vacation next year or a home purchase in two years) and money you could need anytime (your emergency fund).

If you're saving for various near-term goals in your savings account, and you also have the expert-recommended three to six months' worth of expenses, you're in a good spot with your savings account. If you're not already using a savings account that offers buckets, I recommend switching to one -- it makes saving for multiple goals so much easier (and dare I say, more fun?).

What if you have cash beyond what you need for near-term goals and unplanned expenses, and you don't have a set timeline for it beyond "the future"? Here's when you can diversify with your savings. If you're saving for retirement or for some point at least a decade in the future (maybe sending your newborn child to college?), consider investing that cash.

Investing vs. savings accounts

The best stock brokers make it easy and inexpensive to take advantage of the possibility of long-term growth in the stock market. To talk numbers, the S&P 500 gained value in 40 of the last 50 years, and generated an average annualized return of 9.4%. A return of 9.4% is unheard of for a savings account, online or otherwise.

Investing comes with more risk than keeping cash in a savings account (pretty low risk, at least if you're using an FDIC-insured bank), which is why it's best done over the long term. Your investments can lose value in the short term, but if you keep investing in something like an S&P 500 index fund and stay the course (buy and hold), you can reasonably expect to come out ahead in the end.

Take a deep breath. You're likely to see your savings account's APY continue to fall over the coming months, as the Fed continues to reduce its benchmark rate and banks follow suit. But even with a lower APY, your savings account serves an important purpose. It keeps your cash accessible and safe for when you need it. Don't give up on it now.