How the President-Elect Can Affect Savings Accounts

The president can influence your savings account APY, but they have less power than you think.

A new president can affect just about every aspect of the way the country runs. That's the nature of politics -- it can impact everything from economic policies to bank account rates. But the president doesn't have the power to change your savings account interest rate. Only financial institutions and the Federal Reserve can change rates.

Read on for a closer look at how the president-elect can influence the Federal Reserve, and what this could mean for your savings.

The president-elect and the Federal Reserve

The Federal Reserve is the country's central bank. One of its jobs is to maintain economic stability. To accomplish this, the Federal Reserve raises and lowers the cost of borrowing money as it sees fit. The bank isn't technically owned by anyone, nor is it under the direct purview of the president. However, the president can indirectly influence Federal Reserve policies in a few ways.

The president is allowed to appoint the Federal Reserve Chair and nominate all seven members of the Board of Governors. These are the people who are responsible for making decisions that will ultimately affect your savings account rates. However, each member serves a term of 14 years. A new one is appointed every two years. As a result, the current president's influence is limited. In addition, the Senate has to confirm each nominee -- further limiting the president's power. Finally, there are 12 Federal regional banks throughout the country. The president has no say in who runs those.

The president can remove the Federal Chair, but there would need to be a good reason for doing so. Disagreeing on policy doesn't count. This has never happened in U.S. history.

Presidential policies may indirectly prompt the Federal Reserve to raise or lower rates. The president can enact policies that make it easier or more difficult for citizens to spend and save. The Federal Reserve may change rates to keep the U.S. economy stable.

The president is free to disagree with Federal Reserve decisions. But the government cannot force the Federal Reserve into or out of a particular course of action. The Board of Governors is ultimately responsible for making important long-term policy decisions that affect banks, and in turn, your savings account.

The president does not control savings account interest rates. But changes to the federal funds rate can and do impact savings accounts.

How changes in the federal funds rate can impact savings accounts

The Federal Reserve maintains economic stability by raising or lowering the federal funds rate. This is the interest rate banks use to lend money to each other, and it heavily influences the rates banks offer to their customers.

When the Federal Reserve slashes the federal funds rate, as often happens in economic crises, it becomes more affordable for banks to lend money to each other and to customers. This usually causes interest rates on personal loans to drop -- great for borrowers.

But low rates aren't all sunshine and roses -- the APYs on savings accounts tend to drop, too. That's because banks pay savers with interest they make from borrowers. Lower rates on loans means lower rates on savings accounts. On the flip side, when the Federal Reserve hikes rates, loans get more expensive, and you typically see savings account APYs begin to climb.

How are savings account interest rates determined?

Your bank or credit union determines your savings account interest rate. It takes the federal funds rate into account, but other factors influence rates as well. For example, online banks tend to offer better rates than brick-and-mortar banks because they're cheaper to run.

Some banks pay more interest to customers who keep lots of money banked. Other banks prefer to offer the same rate to all customers, regardless of balance.

Keep in mind, savings accounts don't lock in APYs. Banks and credit unions can hike or slash your interest rates at any time. Typically, rate changes are gradual. If the Federal Reserve changes rates, it may be days -- weeks, even -- before you see changes in your interest rate. To lock in great rates, you can open a certificate of deposit (CD).

What to consider if you're looking for a savings account

Sure, you're no U.S. president (probably). But you still have major control of your own interest rates. Shop around the best high-yield savings accounts to earn market-beating rates. But that's not all; when shopping, keep in mind the following make-or-break features: 

• APY: APY is usually the most important factor when choosing a savings account. This number dictates how much interest you'll earn. But you don't need to choose the account with the highest APY -- after all, the APY could change over time. Find an account with a rate among the best, then make sure the account checks all of your other boxes.
• Minimum deposit or balance: Some savings accounts make you deposit a sizable chunk of money to open the account. Others penalize you for dipping below a certain balance. Make sure you can afford any minimum deposit or balance requirements.
• Fees: Some savings accounts have monthly maintenance fees, which you can often waive by fulfilling certain requirements. Your account may also have other fees for things like wire transfers or replacement ATM cards. Look over your savings account's fee schedule to avoid surprise charges.

Most savings accounts let you transfer money electronically. But only some banks also let you deposit checks remotely, or let you deposit or withdraw cash at ATMs. If you prefer banking in person, you should look for a brick-and-mortar bank that operates a branch nearby. 

The bottom line

The president cannot directly change your savings account interest rate. But the president can indirectly influence how much interest you earn by creating economic policies and appointing Federal Reserve members. You can also indirectly influence Federal Reserve policy, by voting in the next presidential election. To earn the best rates right now, shop around.

Related reads

• How the President-Elect Can Affect CDs
• How the President-Elect Can Affect Money Market Accounts
• How the President-Elect Can Affect Brokerages