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What the Fed's Rate Decisions Mean for Your Savings APY

When people say "the Fed raised rates" or "cut rates," they are usually referring to a decision by the Federal Open Market Committee about the federal funds rate — and that decision can ripple through to the APY on your savings account. The Federal Reserve defines the federal funds rate as the interest rate at which depository institutions lend balances held at the Federal Reserve to one another overnight. The FOMC, which holds eight regularly scheduled meetings per year, sets a target range for this rate. The FOMC does not directly set the interest rate your bank pays you. Instead, it uses open market operations to influence the supply of and demand for reserve balances, steering the effective federal funds rate into its target range. Because that rate anchors the broader cost of short-term money in the banking system, banks tend to adjust the yields they offer on deposit accounts in the same general direction over time. In practice, this means deposit APYs often drift higher after the FOMC moves its target range up, and lower after it moves the range down — but the timing, size, and pass-through vary by bank and product, and are never guaranteed. Rates on variable products like savings and money market deposit accounts can change at any time, while a CD locks in its rate for the term. To see where policy stands, check the Federal Reserve's own statements rather than secondhand summaries: the FOMC publishes its target range and meeting statements at federalreserve.gov. This is educational information, not financial advice.