High yield savings rates follow the Federal Reserve's benchmark rate, so they can fall as low as that rate goes
High yield savings account rates are not fixed. They move up and down based on what the Federal Reserve does with its benchmark interest rate, officially called the federal funds rate. When the Fed raises rates, banks raise what they pay you on savings. When the Fed cuts rates, banks cut what they pay you. There is no legal floor — rates can go to zero, and have done so before.
The lowest point in recent history was 2020 to 2021, when the Fed dropped its benchmark rate to near zero during the pandemic. High yield savings accounts at that time paid between 0.01% and 0.50% APY — barely above nothing. Before that, rates had been higher for years. The point: your rate today is not your rate tomorrow, and the direction can reverse.
What matters for your money right now is understanding the gap between what the Fed's rate is and what your bank actually pays you. That gap is called the spread, and it tells you whether your bank is being generous or stingy with the money it borrows from you.
Key Takeaways
- High yield savings rates can fall to zero or near-zero if the Federal Reserve cuts its benchmark rate that far, as happened in 2020.
- The spread between the Fed's rate and what your bank pays you varies by bank and changes as competition for deposits shifts.
- Banks that compete aggressively for deposits (often online-only banks) tend to pass rate cuts to you more slowly than traditional banks do.
- If rates drop significantly, moving your money to a different bank or locking in a CD rate may protect your returns better than staying in a savings account.
- The Fed's own projections and economic forecasts can signal whether rate cuts are likely, though predictions are not guarantees.
Why banks cut rates slower than the Fed does
When the Federal Reserve cuts its benchmark rate, banks do not all cut their savings rates on the same day. Some wait weeks or months. This delay is intentional — banks want to keep the spread (the difference between what they pay you and what they earn on loans) as wide as possible for as long as possible.
Online-only banks and smaller regional banks often cut rates faster than large national banks do, because they compete for deposits by offering higher rates. When the Fed starts cutting, these banks know they will lose customers if they do not stay competitive. Large banks with millions of existing customers can afford to move slower because customers are less likely to leave.
This means the timing of when your rate drops depends partly on which bank you use. If you are in a high yield savings account at a large national bank, you may see your rate fall faster than if you are at an online bank — the opposite of what many people assume.
What the Fed's rate projections tell you
The Federal Reserve publishes its own forecasts for where it thinks rates will go. These projections come out four times a year after the Fed's policy meetings and are available on the Federal Reserve's website. The projections show what Fed officials think the benchmark rate will be at the end of the current year and the next two years.
These are not guarantees. Economic conditions change, inflation can surprise, and the Fed changes its mind. But the projections give you a sense of the direction officials are thinking about — whether they expect to keep rates steady, cut them, or raise them. If the projections show cuts coming, you know rate cuts on your savings account are likely to follow within months.
You can also watch what financial markets expect by looking at the CME FedWatch Tool, which shows what traders are betting the Fed will do at its next meeting. This is not official, but it reflects real money betting on the outcome.
How far rates fell in past downturns
| Period | Fed Benchmark Rate | High Yield Savings Rate Range |
|---|---|---|
| 2018–2019 (before cuts) | 2.25%–2.50% | 1.80%–2.20% |
| 2020–2021 (pandemic cuts) | 0.00%–0.25% | 0.01%–0.50% |
| 2022–2023 (rate hikes) | 4.25%–5.50% | 4.00%–5.35% |
The 2020 drop shows the extreme: when the Fed cut rates to near zero, high yield savings rates fell to nearly nothing. Some accounts paid 0.01% APY, which means $1,000 earned about 10 cents per year. This lasted roughly 18 months before the Fed started raising rates again in 2022.
The pattern is clear: your rate can fall dramatically if the Fed cuts dramatically. How far it falls depends on how far the Fed goes. If the Fed cuts to 1.00%, high yield rates will likely land somewhere between 0.75% and 1.00%. If the Fed cuts to near zero again, high yield rates will follow.
When to consider moving your money
If you are watching rates fall and you believe they will stay low for a while, you have options beyond just accepting a lower savings rate. Certificates of deposit (CDs) lock in a rate for a fixed term — typically three months to five years. If you think rates will fall, locking in a CD rate today protects you from that fall.
For example, if a one-year CD pays 4.50% and you think the Fed will cut rates in the next six months, locking in that 4.50% for a full year means you keep that rate even if savings accounts drop to 2.00%. The tradeoff is that you cannot withdraw the money without a penalty.
You can also move your money to a different bank if another bank is still offering a higher rate. This makes sense if the rate difference is large enough to justify the time it takes to open an account and transfer funds. A difference of 0.50% or more is usually worth the effort; a difference of 0.10% probably is not.
What happens to your money if rates hit zero
If rates fall to zero or near-zero, your savings account still works exactly the way it does now — you can deposit, withdraw, and transfer money freely. The only difference is that you earn almost nothing on the balance. Your money is still safe (assuming your bank is FDIC-insured), but it is not growing.
This is why people in low-rate environments often move money into other places: short-term CDs, money market funds, or even regular checking accounts that offer small rates. The goal is to find any place that pays something rather than nothing, even if that something is tiny.
The real risk of zero rates is not to your money itself but to your purchasing power. If inflation is 3% and your savings account pays 0%, you are losing 3% of what your money can buy each year. This is why many people moved money during 2020–2021 even though rates were extremely low — they were looking for any return that beat inflation, even by a little.
How to track rate changes before they happen
You do not have to wait for your bank to announce a rate cut to see it coming. The Federal Reserve announces its decisions on specific dates, and those dates are published on the Fed's website. Mark them on your calendar. On the day of an announcement, watch the Fed's statement to see whether it cut rates, held them steady, or raised them.
Within days, financial news outlets will publish articles about what the cut means for savings rates. Within weeks, banks will start adjusting their rates. By watching the Fed's calendar and reading the announcements, you can anticipate rate cuts before your bank makes them official.
You can also set up rate alerts through websites that track savings account rates across banks. These sites notify you when rates change at specific banks or when a particular rate threshold is crossed. This gives you a heads-up to move money if a better rate appears elsewhere.
Frequently Asked Questions
Can a high yield savings account rate go negative?
No. In the United States, banks cannot charge you to hold money in a savings account (though some banks do charge monthly fees). Your rate can fall to zero, but not below it. Some countries have experimented with negative rates on large institutional deposits, but this does not apply to consumer savings accounts in the U.S.
If I lock money in a CD now, am I protected if rates fall?
Yes. A CD rate is fixed for the entire term. If you buy a one-year CD at 4.50% and rates fall to 2.00% in six months, you still earn 4.50% for the full year. The tradeoff is that you cannot withdraw the money early without paying a penalty, usually a few months of interest.
How much lower could rates realistically go from here?
That depends on what the Federal Reserve does, which depends on inflation, employment, and economic conditions — all of which change. The Fed's own projections, published four times a year, show where officials think rates will go. These are educated guesses, not certainties. Rates could fall further than projected or stay higher than expected.
Should I move my money to a different bank if rates drop?
Only if the rate difference is significant enough to justify the time and effort. A difference of 0.50% or more is usually worth switching. A difference of 0.10% probably is not. Calculate how much extra money you would earn in a year at the higher rate, then decide if that amount is worth opening a new account.
What if I need the money before a rate cut happens?
Use a regular savings account or money market account instead of a CD. These let you withdraw money without penalty whenever you need it. You will earn less than a CD, but you keep your flexibility. High yield savings accounts are designed for money you do not need immediately but want to keep accessible.