Why interest rates change: How banks and credit unions set rates
Key takeaways
Factors like inflation, economic growth, and employment levels influence how interest rates move, as policymakers aim to balance growth with price stability.
In the U.S., the Federal Reserve adjusts benchmark rates to influence borrowing, spending, and saving—changes that ripple through savings accounts, loans, and investment returns.
Shifts in interest rates can impact how much you earn on savings, what you pay on loans, and when it makes sense to save, borrow, or lock in fixed rates.
The Federal Reserve met in May and held interest rates steady. With inflation remaining higher than expected, experts are now not expecting rate cuts to arrive until the end of 2024 or even 2025.
While this does mean that interest rates generally will remain at or near their current peaks for the coming months, we have also begun to see industry-wide that banks and credit unions have begun to decrease rates on savings accounts and CDs.
While this may seem counterintuitive, banks and credit unions may take into consideration a variety of factors when determining their interest rates.
What factors determine interest rates
When determining their interest rates, financial institutions may factor in any Fed rate hikes or decreases. However, the decision can be more complicated than that.
For instance, a bank’s individual funding needs will likely be part of the calculation. If a bank or credit union is seeing lower loan volume than they had expected, their need for deposits may be lower. Thus, they may adjust their interest rates on deposit products accordingly, meaning lower rates.
Other market conditions may come into play as well when banks and credit unions are setting their rates as there is typically correlation between inflation and interest rates. More recently, inflation has been a driver of federal interest rate increases, bringing rates to their highest in decades. While this has made it more expensive to borrow funds, it has created a beneficial environment for savers to grow their money.
Essentially, higher inflation means decreased purchasing power in the future. In order to account for this, you can generally expect financial institutions to account for this with higher interest rates.
While the Federal Reserve may hold rates steady, there are a variety of other factors that determine interest rates. Thus, you may see lower rates on savings products despite headlines proclaiming rates remain unchanged.
Will interest rates go down?
While the Federal Reserve is expected to cut rates at some point in the future, for the moment the timeline remains unclear. What we are seeing is that banks and credit unions are changing their rates based on market conditions. For savers, this may be a source of concern for lost interest-earning potential.
While this concern may be warranted, there are fortunately a few ways savers can take advantage.
The good news remains that interest rates on savings accounts and CDs remain significantly higher than they were just a few years ago, meaning the potential returns on your savings remains in a strong position. Even better is to make sure you’re earning one of the best rates in the nation, such as with one of Raisin’s partner banks or credit unions.
Concerned about further rate decreases? Locking in a fixed rate with a high-yield CD can allow you to accurately predict your returns. And, by fixing your rate for your CD’s term, you can hedge your bet against any future rate decreases.
Take a look below to see some of the current top CD offers on the Raisin platform.
Bank
Product
APY
Raisin is not an FDIC-insured bank or NCUA-insured credit union and does not hold any customer funds. FDIC deposit insurance covers the failure of an insured bank and NCUA deposit insurance coverage covers the failure of an insured credit union.
More about interest rates
How often do interest rates change?
The Federal Reserve’s Federal Open Market Committee typically meets eight times per year to set the federal funds rate, which can be one factor in the interest rates offered by banks and credit unions. Banks and credit unions may change their interest rates at any time.
When do interest rates change?
Interest rates set by financial institutions may be subject to change at any time, subject to each specific product’s terms.
Why can banks change interest rates?
Banks might change their interest rates for a variety of reasons, including rates set by the Federal Reserve, market conditions, and institutional funding needs.
How much do interest rate fluctuations impact your savings?
Seeing the interest rate on your high-yield savings account decrease can be worrisome. However, using an interest rate calculator, it’s easy to see that minor changes have minor impacts in the long term. For instance, if you had a savings account with $100,000 deposited and its rate dropped from 5.00% to 4.85%, that would look like a major drop. However, your annual interest earnings would drop by just $150 — or roughly 41 cents less per day.
Who benefits from rising interest rates?
In the case of deposit products, savers can benefit from rising or elevated interest rates. Higher interest rates means higher interest payments on deposits held with a financial institution. Lenders also benefit from higher interest rates, as they will receive increased interest payments from borrowers.
What is the reason for interest rate increases?
There are many factors for fluctuating interest rates. In addition to the Federal Reserve’s set rates, interest rates may change due to market conditions such as inflation. You may also see interest rates going up if there is an increase in loan demand, while they will typically stay decrease in correlation with lower loan demand.
Why do interest rates go up with inflation?
The Federal Reserve may increase interest rates to combat inflation, as they have done in recent years. This creates a correlation between inflation and interest rates that also allows financial institutions to consider the decreased purchasing power of money they lend.
What is the effect on spending in the economy caused by changing the interest rate?
With interest rates going up, typically businesses and consumers will spend less money. As spending goes down, generally so too will earnings, which can then impact stock prices.
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
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*APY means Annual Percentage Yield. APY is accurate as of April 10, 2026. Interest rate and APY may change after initial deposit depending on the terms of the specific product selected. Minimum opening deposit is $1.00.
Raisin is not an FDIC-insured bank, and FDIC deposit insurance only covers the failure of an insured bank.
Raisin is not an NCUA-insured credit union. NCUA deposit insurance only covers the failure of an insured credit union.
Raisin does not hold any customer funds. Customer funds are held in various custodial deposit accounts. Each customer authorizes the Custodial Bank to hold the customer’s funds in such accounts, in a custodial capacity, in order to effectuate the customer’s deposits to and withdrawals from the various bank and credit union products that the customer requests through Raisin.com. The Custodial Bank does not establish the terms of the bank or credit union products and provides no advice to customers about bank or credit union products offered by the applicable bank or credit union through Raisin.com. Each customer also authorizes the Service Bank to move funds among the various banks and credit unions at the customer’s request. First International Bank & Trust (FIBT), Member FDIC, is the Service Bank. Bell Bank and Starion Bank, each Member FDIC, are the Custodial Banks.
†Based on $250,000 in FDIC or NCUA insurance coverage per insurable category of ownership at each partner bank or credit union on the Raisin platform (each a "Product Bank"), when aggregated with all other deposits held by you at such Product Bank and in the same insurable category. Deposits made through Raisin will be eligible to receive deposit insurance from the FDIC or the NCUA (each a "Deposit Insurer") in accordance with and up to the maximum amount permitted by law at each Product Bank. Raisin is not a bank or credit union and does not hold any customer funds. Funds are held at FDIC-insured banks and NCUA-insured credit unions. Deposit insurance covers the failure of an insured bank or credit union. Certain conditions must be satisfied for pass through deposit insurance coverage to apply. Customers may choose to deposit funds with identically registered accounts at different Product Banks on the Raisin platform to be eligible for Deposit Insurer coverage up to $10 million for individual accounts and $20 million for joint accounts when at least 40 Product Banks are utilized. Please be aware, however, that any deposits you have at a Product Bank, whether through the Raisin platform or outside the Raisin platform, that you may hold in the same capacity (such as in an individual capacity or joint capacity) count toward the applicable Deposit Insurer's deposit insurance maximum amount, and any such amounts that you hold in the same capacity at a Product Bank that exceed the maximum insurance coverage by the applicable Deposit Insurer will not be insured. For more information on FDIC deposit insurance, please see here. For more information on the NCUA share insurance fund, please see here. You are solely responsible for monitoring the amount of funds you have on deposit at each a Product Bank, whether through the Raisin platform or outside the Raisin platform, to confirm that the deposits you hold in the same capacity at each Product Bank do not exceed the maximum deposit insurance coverage provided by the applicable Deposit Insurer.