It’s important to understand how the interest rate on your savings account can change, especially if you’re saving for something specific. In this post, they’ll cover what can cause interest rates to increase and decrease as well as how often they change.
Can savings account rates change?
The answer is yes; interest rates on savings accounts can change.
When it comes to interest rates, banks are in a constant state of flux, meaning that the amount you earn in your savings account may increase or decrease at any time.
This is why it’s important to monitor your high-yield savings account rate regularly so you can take advantage of higher-earning opportunities. How often should you check? It is recommended to check at least once a month to keep up-to-date with changing conditions and opportunities for earning more money on your savings. For example, you can easily check online, in person at your bank branch or over the phone with customer service representatives (CSRs).
How often do savings account rates change?
Savings accounts are a great place to stash money that you know you’ll need soon. However, it’s important to keep in mind that the interest rates on savings accounts change daily. While this means that one day you might earn more in interest than usual, it also means that another day your balance won’t be growing as quickly as you had anticipated.
The good news is that savings accounts are FDIC insured, which means your funds are protected up to $250k per account holder (up to $500k for joint accounts). So even if your bank goes out of business or gets robbed and closes its doors without warning (like what happened at First National Bank during the Great Depression), there’s a good chance the government will step in and reimburse any lost funds.
What can cause interest rates to drop?
You’ll want to take a look at these interest rates when considering how often the interest rate changes on your savings account.
The prime rate is the interest rate that banks charge their most creditworthy customers (e.g., large corporations). It can fluctuate significantly over time and is usually higher than other types of loans, such as mortgages and car loans.
The Federal Reserve sets the Federal funds rate, which controls monetary policy in the United States. The discount rate is another central bank tool used to influence borrowing costs for financial institutions and individuals. LIBOR (London Interbank Offered Rate) is an average of what banks say they would have to pay for short-term loans from other banks in London.
What can cause interest rate increases?
When the Federal Reserve raises the discount rate, it can cause banks to raise interest rates on savings accounts. This is because banks are required to keep a certain percentage of their deposits in reserve. However, when there is more demand for those funds, they have to raise their deposit rates or lose customers.
Lantern by SoFi experts says, “Some high-interest such accounts need a minimum amount from newly made customers.”
It’s important to note that interest rates change all the time, and they can change quickly. If you have a savings account, it’s best to check it frequently, so you know what kind of interest rate you’re getting on your money. This way, if the rate drops suddenly and you need more money than expected in an emergency situation (like paying off bills), then at least there will be some funds available for emergency use!