My Savings Account APY Dropped Recently. Here’s Why I’m Not Too Upset

A friend and I were recently talking about our savings goals. We both have the same savings account, so she alerted me that our rate had recently dropped. Life’s been busy, and I hadn’t looked at my account much in a couple of weeks, so I had no idea. Sure enough, the rate is now slightly lower than it’s been for the past few months. While it’s a bummer, I’m not too upset about this news. Despite the rate change, I plan to keep my savings in this account. I’ll explain why.

I’ve continued to learn more as I write about finances

Each of us continues to acquire new knowledge every day. Throughout my career as a travel and personal finance writer, I’ve picked up knowledge that I’ve been able to apply to my personal life and I’m continuously learning more each day that I write.

While I’ve spent years prioritizing earning rewards from rewards credit cards, I had more work to do regarding my savings. I hadn’t been paying close attention to my bank’s annual percentage yield (APY) or the rate of return I could earn by keeping my money in the bank for a year. This is an important rate to know. I knew I needed to make changes to reach my savings goals sooner.

So, in the summer of 2021, I opened a high-yield savings account with an online bank to earn more money from interest. My local brick-and-mortar bank offered a meager APY then, so I knew that transferring my savings to this type of bank account was the best move for my extra money.

The rate for my high-yield savings account has adjusted many times since I first opened it, but I’m happy that I’m earning extra cash while my money sits in the bank. Any additional income like this is a win because it can help me reach my personal finance goals.

Savings account rates can fluctuate

It’s important to remember that the APY your savings account offers today may differ from what it offers in a few months or next year. That’s because rates can change at any time.

Changes to the Federal Reserve’s interest rate — the rate at which banks and credit unions borrow and lend from and to each other — can cause banks to adjust the rates they extend to consumers. The Fed has hiked the rate several times over the last year to combat inflation.

The rate hikes have benefited people with high-yield savings accounts. Many banks have hiked their rates for these accounts. However, lending rates for mortgages and auto loans have also increased, so there have been some wins and losses for consumers.

Until recently, my savings account’s APY was 4.35% — but now it’s 4.25%. As a simple example, say I had $10,000 in my savings account earning an APY of 4.35%. At the end of one year, I’d have earned $435 in interest on my balance. The same $10,000 balance would earn $425 at the end of one year with an APY of 4.25%. A difference of $10 over a one-year period. That rate reduction isn’t a big deal in the grand scheme of things. Now that I’ve built an emergency fund, which I stash in this bank account, I’m earning a sizable amount of extra income from interest, despite the small rate decrease.

I’m also happy with my current bank and the features of my bank account. At this point, it’s not worth the extra effort to transfer my money elsewhere. If my bank continues to lower its rates while others maintain higher rates, I may reconsider and move my money. But for the time being, I’ll keep contributing to my savings fund and watch my balance grow.

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