The interest rate on Wealthfront’s cash account may have peaked for now, and it shows why picking the right place to save is about more than APY

Interest rates on high-yield savings accounts are always subject to change. Ilektra Vasileiadou Kandylidou/Contributor/Getty

High-yield savings accounts have become commonplace in banking, and for good reason. They allow you to steadily grow money you need in the short term, with zero risk of losing it.

The ideal high-yield savings account has no fees, a low minimum-balance requirement, and a high annual percentage yield (APY), which is the rate you earn on your money on an annual basis.

When it comes to earning potential, Wealthfront’s Cash Account previously offered 2.57% APY, but on August 2 the robo-adviser announced the rate would drop to 2.32% after the Federal Reserve cut its benchmark interest rate by 0.25%. Still, its APY is well above the industry average for a general savings account, which earns 0.09%.

Wealthfront debuted its Cash Account earlier in 2019 with a 2.24% APY and had been steadily increasing it until the Fed announced its benchmark rate cut. While technically a cash account, it has the same features and a comparable interest rate to a high-yield savings account. Despite the latest rate reduction, the account is still fee-free, requires a minimum opening deposit of just $US1, allows unlimited transfers, and is FDIC-insured up to $US1 million.

Wealthfront recommends its high-yield savings account for storing money that’s going to be used within five years, whether it’s an emergency fund, down payment for a home, or an upcoming expense.

Here’s how Wealthfront’s Cash Account stacks up against two popular high-yield savings accounts – Ally’s online savings account and Goldman Sachs’ Marcus account:

High yield savings accounts compared table - new rate

There’s no denying Wealthfront’s Cash Account is an all-around great deal. Still, the APY offered when you open any general savings or checking account isn’t locked in, so it’s always a good idea to make sure the account is otherwise desirable before putting your money there.

Why interest rates on high-yield savings accounts are bound to fluctuate

When you open a Cash Account at Wealthfront, your money is stored at one of its partner banks. These banks have interest rates that are determined by the federal funds rate, which moves up and down at the behest of the Federal Reserve. Wealthfront passes along the interest rate set by its partner banks to its own clients, so when the federal funds rate fluctuates, so too does the rate on your high-yield account.

As Wealthfront CEO Andy Rachleff previously explained in a blog post, “the fed funds rate influences nearly every financial institution, and a rate decrease directly impacts consumers. The good news: when the rate goes down, mortgage rates go down. The bad news: high yield savings account rates and Certificate of Deposit (CD) rates go down, too. Unfortunately that includes Wealthfront cash accounts as well.”

Across the board, high-yield savings accounts offer better rates than a traditional savings account, usually earning up to 20 times more even as interest rates shift, so you’ve already made progress toward automatically building wealth by keeping your money there.

Currently, Business Insider readers who sign up for a Wealthfront investment account will receive their first $US5,000 managed for free in that account in perpetuity.