On Dec. 10, the Federal Reserve announced the third and final rate cut of 2025. While it was welcome news to borrowers, it was a different story for savers.
Banks look to the Fed's benchmark rate when setting their own interest rates. If the Federal fund rate is high, they need more reserves on hand and raise the return on savings accounts and CDs.
But when the Fed drops its rate, banks are less competitive for depositors and returns drop. So with December's 25-basis-point cut to a range of 3.5%-3.75%, returns on savings accounts will start to trickle down, too.
Even though the return on my high-yield savings account (HYSA) will decline, I plan to keep it open. Here's why.
Why I'm keeping my high-yield savings account
Rates on HYSAs still beat traditional savings accounts
The average return on a traditional savings account is 0.40%, according to the FDIC. That's a tenth of the 4.0% APY I can earn with the typical HYSA. If I'm going to have a savings account, I want to maximize my return. Even if high-yield rates fall further, they'll still outpace traditional savings accounts exponentially.
There's no cap to earning Western Alliance Bank HYSA's high APY, plus there are no monthly fees and the minimum opening deposit is just $1.
Western Alliance Bank High-Yield Savings Account
Annual Percentage Yield (APY)
3.80% APY
Minimum balance
$1 minimum deposit
Monthly fee
None
Maximum transactions
Up to 6 transactions each month
Excessive transactions fee
The bank may charge fees for non-sufficient funds
Overdraft fee
No overdraft fee
Offer checking account?
No
Offer ATM card?
No
Terms apply.
Pros
- Strong APY
- Low minimum deposit required
- No monthly fees
Cons
- Bank may charge non-sufficient funds
- Doesn't offer checking account or ATM access
- Accounts are opened and managed on Raisin.com
I'm not paying any fees
My high-yield savings account costs me nothing. I just deposit money into it and watch my balance grow over time. Even if that's at a slower rate now than before, it's still growing.
In a traditional savings account, you might have to pay up to $10 per month in maintenance fees or meet a minimum balance to get them waived. Since online banks don't have the same overhead as brick-and-mortar institutions, they're more likely to have no (or lower) fees.
LendingClub LevelUp Savings offers a competitive high-yield rate, along with no monthly fees or minimum balance requirements. Account holders get a free ATM card and are never charged ATM fees.
LendingClub LevelUp Savings Account
Annual Percentage Yield (APY)
4.00% (with monthly deposits of $250 or more), or 3.00%
Minimum balance
None
Monthly fee
None
Maximum transactions
Excessive transactions fee
None
Overdraft fees
N/A
Offer checking account?
Yes
Offer ATM card?
Yes
Terms apply.
Pros
- Strong APY
- No minimum balance required
- No monthly fees
- Free ATM card and no ATM fees
Cons
- At least a $250 monthly deposit required to earn the highest APY
- No physical branch locations
My money is secure
High-yield savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC), which means deposits of up to $250,000 are guaranteed. I'm well under that limit, so in the rare event my bank goes under, I'd get all my savings back.
Regardless of whether my savings rate moves up or down, I rest easy knowing that the money in my high-yield savings account will be there when I need it.
Find the right savings account for your needs
I won't miss out when rates go up again
We may be in a rate-cutting environment now, but that will level out soon enough. Look at the past five-plus years: The Fed slashed its benchmark rate during the pandemic, raised it again when the economy stabilized and is now back to making cuts.
Keeping my HYSA open means that I won't have to make any big moves when rates go up again. I'll already have my money in a good place, where it will benefit immediately.
High-yield savings account FAQs
What is a high-yield savings account?
A high-yield savings account earns an above-average interest rate. Currently, HYSAs have an average APY of over 4%. That's about ten times the yield of a traditional savings account.
How often do rates change?
High-yield savings account rates are variable, meaning they can change at any time. They often fluctuate in accordance with the Fed rate.
How much should you keep in a high-yield savings account?
Experts recommend keeping three to six months of living expenses in an HYSA as an emergency fund. This way, the money isn't locked away (as it would be in a CD), but it's still earning interest.
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