Now that the Federal Reserve has lowered interest rates, one potential downside is that savers might not see their accounts grow nearly as fast.
On Tuesday, Apple reduced the rate for its saving accounts from 4.4% a year to 4.25% a year. Previously, a person with $10,000 in their account would have seen their account grow by $440 over the course of a year. Now, that amount would drop to $425.
Earlier in the year, Apple had offered a 4.5% annual yield on its savings account.
Prior to last week, federal rates were at their highest levels since early 2001 — between 5.25% and 5.5%. With the U.S. inflation rate easing to normal levels in recent months, the Federal Reserve lowered rates to between 4.75% and 5%.
The federal funds rate is the interest that banks pay for overnight borrowing in the federal funds market. According to the Federal Reserve, changes in the federal funds rate "influence other interest rates that in turn influence borrowing costs for households and businesses as well as broader financial conditions."
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Raising interest rates is considered one of the government's most effective tools for combating inflation. As of August 2024, the U.S. annual inflation rate was 2.5%.
As of now, many high-yield savings accounts still are outpacing inflation.
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According to NerdWallet, Ally bank's high-yield savings account has remained at 4.2% after dropping from a high of 4.35% in January. CIT Bank has a high-yield savings account of 4.85%, which is down slightly after peaking at 5.05% earlier this year. LendingClub's interest rate sits at 5%.
"Inflation erodes spending power, since it means goods and services are more expensive than they were previously. So when the inflation rate is considerably higher than the average national savings account rate — as it was for more than two years — it may seem that parking money in a savings account isn’t beneficial," NerdWallet writes. "But the larger reason for saving cash is to have easy access to money in case you need it quickly, say, for an unexpected car repair expense. Setting aside funds for financial emergencies can help prevent you from going into debt, which can be costly, especially when interest rates rise."
