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It’s easy math to understand. The higher the interest rate for your savings account, the more money you earn. The challenging part is predicting what will happen with rates in the coming year. What is a high-yield savings account? How are rates set? What are the experts saying about high-yield savings account trends in 2025? We’re reviewing these questions so you can make smart financial decisions about where to direct your money in the coming year.
What Is a High-Yield Savings Account?
Like a regular savings account, a high-yield savings account (HYSA) earns interest. However, the annual percentage rate (APY) can be significantly higher.
A CNBC article notes, “The national average APY on regular savings accounts is just 0.35%, according to the Federal Deposit Insurance Corporation (FDIC). That’s over 14 times less than what the highest-yield savings accounts currently offer.”
While regular savings accounts typically keep rates the same, HYSA rates are variable and may increase or decrease based on economic factors.
HYSAs offer varying monthly or annual fees, minimum balance requirements, and monthly transaction limits. Additionally, many HYSAs are only offered online and do not have local branches due to the high overhead costs.
Why Choose a High-Yield Savings Account?
HYSAs can be a valuable piece of your financial portfolio. Since the money is more accessible than from an investment account, they are a good option for emergency funds or long-term savings goals like vacations or a down payment for a car. They’re also a safe, risk-free option since accounts are federally insured, and while interest rates may fluctuate, you don’t have the risk of losing money like with the stock market.
However, HYSAs are unlikely to meet the potential of investing in the stock market over a long period. You may also need to meet requirements such as minimum balances and limited withdrawals to avoid fees.
How Are Rates Set?
Individual banks set their interest rates based on several economic factors. Interest rates generally follow the Federal Reserve (Fed) and pay higher rates when the Fed rates go up — and lower rates when the Fed decreases rates. The Fed adjusts interest rates as mandated by Congress to maintain the country’s economic stability. When inflation is high, the Fed often increases interest rates to slow down borrowing in an effort to reduce demand and costs.
While influenced by national interest rates, banks set their own rates. They may offer higher rates to attract new customers. Banks can also choose how often rates compound — daily, weekly, monthly, or annually. The more often rates compound, the more money you will earn.
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Trends for 2025
Rates Will Likely Fall
It is challenging to predict what interest rates will be in 2025. However, if the Fed continues to lower interest rates as inflation goes down, HYSAs rates will also likely decrease. The CME FedWatch predicts four rate cuts in 2025 by September. If this is true, you’ll want to open an account soon to take advantage of higher rates while they last.
Account Bonuses
A positive trend for savers is that more banks are offering cash bonuses for opening new accounts. These offers, ranging from $100 to up to $3,000, can be flat bonuses or based on how much money you put into the new account. Some have requirements such as opening a checking account and minimum balances.
Rise of Online Banks
Fueled by customers increasingly comfortable with digital banking, online banking is on the rise. The younger generation, in particular, prefers banking on their phone or online. With considerable investments in financial technology and features like mobile check deposits and digital customer service, online banking is becoming a feasible option for more customers. As more of these banks come to market, competition increases, and they may offer higher rates or bonuses to incentivize new customers.
Credit Union Offerings
Unlike for-profit banks, credit unions are not-for-profit organizations that return profits to the members. This model allows them to offer higher rates on savings accounts. Members can enjoy the benefits of a brick-and-mortar bank with rates typically only offered by online companies.
Don’t miss out on higher rates. With the advantages of higher interest rates that HYSAs offer but the impending trend of decreasing rates, now may be the best time to open an account. Consider whether an online bank or local credit union best serves your needs, and be sure to review account requirements, bonuses, and frequency of compounding. Then, start saving for emergencies or to reach your next financial goal.
