If you have money in a savings account, you’ve probably noticed that you’re not earning as much on your balance lately.
In 2024, it was possible to earn a savings account interest rate of 5% or more. Now, the best savings account rates hover around 4% APY. And they’re still falling.
Will that trend continue? There’s no telling exactly how the Fed will adjust rates moving forward, but here’s how the Fed’s decisions impact interest rates and whether savings rates will go up or down at all next year.
Savings account rates are variable, meaning they can increase or decrease at any time. And because banks are private businesses, they can set their rates as they see fit.
For example, banks may raise interest rates on savings accounts to attract new customers and increase cash reserves. On the other hand, if there’s less demand for loans, banks don’t need as much deposit capital, so they might lower savings rates to reduce the expense of paying interest.
Read more: How do banks set their savings account interest rates?
However, savings rates are also influenced by other factors, including the federal funds rate — the rate at which banks lend to each other to meet reserve requirements.
The Federal Reserve sets the federal funds rate. Certain members of the Fed, known as the Federal Open Market Committee (FOMC), meet eight times per year to discuss whether to adjust the federal funds rate to meet its economic objectives.
One of those objectives is to maintain an inflation rate of about 2% — the rate that experts believe is consistent with pricing stability, positive employment rates, and economic growth.
When inflation is too high, the Federal Reserve often hikes the federal funds rate to make lending between banks more expensive and slow economic growth. As a result, other bank product rates follow suit; interest rates on loans generally increase, along with the rates on deposit products.
If the Fed wants to stimulate the economy, it will lower the federal funds rate, making it easier to borrow money. But that also means savers will earn less on their deposits.
Read more: Is ‘rate chasing’ worth it?
Interest rates on savings accounts remain elevated by historical standards. The national average savings account rate is currently 0.39%. That may seem low compared to other types of investments, but consider that just four years ago, it was only 0.06%.
That’s thanks, in large part, to a series of interest rate hikes by the Fed to combat skyrocketing inflation. The target range for the federal funds rate increased from 0.25%-0.5% in January 2022 to 5.25%-5.5% by July 2023, causing savings account rates to rise in tandem.
The Fed maintained that target range until September 2024, when it began a series of rate cuts as inflation cooled. The most recent cut occurred in December 2025, bringing the target range to 3.5%-3.75%.
As a result, interest rates – including savings account rates – have started to drop and will likely continue falling in the new year. However, whether the Fed will implement additional rate cuts in 2026 is uncertain.
According to the CME FedWatch Tool, there’s less than a 25% chance the Fed will cut rates in its January 2026 meeting. Some FOMC members have expressed the view that rates should be held steady for the foreseeable future. Atlanta Fed president Raphael Bostic, for instance, recently stated that he did not support cutting rates this month and does not see a case for cutting rates next year unless inflation drops.
That said, not all committee members feel the same way. And a change in leadership next year could alter the course of the Fed’s monetary policy.
“The expectation of a lower target fed funds rate is buoyed by the expectation that President Trump will nominate Kevin Hassett (currently Chair of the National Economic Council) to replace Jerome Powell when his term as Fed chair ends next year,” said says Robert R. Johnson, CFA, CAIA, and Professor of Finance at the Heider College of Business at Creighton University.
Johnson explained that Hassett is an interest rate dove who will likely push for lower rates. “This comes at a time in which there is disagreement on the Fed about which of the dual mandates is currently most important,” he said. “Some think interest rate cuts are warranted in order to buoy a lagging labor market, while others think that interest rate cuts could pose a threat to increased inflation. Hassett certainly falls on the side of interest rate cuts and that is the chief reason he is favored by Trump.”
Read more: How much control does the president have over the Fed and interest rates?
For now, many savings accounts are still offering competitive rates, but there’s a good chance they’ll continue to decrease. You may want to explore other options, such as CDs, to maximize your savings.
While savings accounts have variable rates that fluctuate along with market conditions, CD rates are fixed for the duration of the term. You can lock rates above 4% APY with CDs from leading banks. However, there is a catch: The money deposited into a CD cannot be withdrawn until the CD reaches its maturity date. Otherwise, you’ll have to pay penalties and lose accrued interest.
One way to preserve some liquidity while securing the higher CD rates is by creating a CD ladder.
A CD ladder involves splitting your money across multiple CDs with staggered maturity dates. This way, you get regular access to your funds while still earning the best CD rates often offered on longer-term CDs.
Read more: How to maximize your interest earnings following a Fed rate cut
