SoFi

The federal funds rate is a key interest rate set by the Federal Reserve, and likely the most closely watched indicator of where the U.S. economy may be headed next. Changes to the federal funds rate provide insight into the Fed’s position on monetary policy and how it plans to respond to economic factors, including inflation and employment levels.

In September, 2024, the Fed announced a rate cut of 50 basis points (a half percentage point), lowering the federal funds rate to 4.75% to 5%. This was the first rate cut made in four years, marking a pivotal shift from the Fed’s policy of holding higher interest rates in place to battle the persistent inflation that followed COVID-19 rate cuts.

The Fed also signaled rates could drop an additional 50 basis points by the end of 2024, with more to follow, as it drives toward a more neutral rate.

Changes to the federal funds rate almost invariably create a ripple effect of changes throughout the economy, impacting interest rates on loans, mortgages, and savings. Here’s a closer look at the Federal Reserve and how its economic outlook and policies can impact your accounts.

Learn more: SoFi’s Liz Young Thomas Looks at the Fed’s September Statement

Q: What Is the Federal Reserve?

A: The Federal Reserve System was founded by Congress in 1913, with the primary goal of promoting the stability of the U.S. banking system. Since then, the Fed’s mandate and methods have evolved — today the work includes regulating financial institutions, directing monetary policy, managing inflation, and keeping employment rates high. And one of the key levers it pulls to those ends is adjusting the federal funds rate.

Q: What Is the Federal Funds Rate?

A: The federal funds rate is a benchmark interest rate that guides the interest rates U.S. banks use when lending excess reserves to other banks overnight. Banks frequently borrow money from one another to ensure they have sufficient reserves to cover consumer withdrawals and other commitments. While changes to the federal funds rate most immediately impact the rates banks use for overnight lending, they influence consumer interest rates as well.

The federal funds rate is set by the Federal Open Market Committee (FOMC), an arm of the Federal Reserve System responsible for setting a range of monetary policies that can influence inflation, economic growth, and the job market. The FOMC is made up of 12 members who meet approximately every six weeks to review their stance on economic policies, including whether they should adjust the federal funds rate.

Q: What Factors Influence the Fed’s Rate?

A: The FOMC determines interest rate policy based on a wide range of economic indicators including inflation, employment levels, and durable goods orders data, which can provide insight into the economic health of a variety of industries such as technology, transportation, and manufacturing.

When these market indicators suggest that the economy is languishing, the FOMC may reduce the federal funds rate to make borrowing less expensive in the hopes of boosting economic activity. More money in consumers’ pockets typically means more spending and more money streaming into the economy.

When prices are rising too quickly, the FOMC may increase its interest rate, making it more expensive to borrow. That can slow spending and, in theory, help keep inflation in check.

Q: How Does the Fed Influence My Savings APY?

A: As mentioned above, the federal funds rate directly influences the interest rates banks use to borrow from or lend money to one another. But secondary effects eventually impact the wider economy, including the interest rates banks and financial institutions use when lending money through credit cards, personal loans, and mortgages. It can also affect the annual percentage yield, or APY, for savings accounts.

A federal rate decrease should eventually translate into lower interest rates when you borrow money to buy a house or car. It may also lead to a lower APY on your savings account.

When the federal rate increases, on the other hand, it becomes more expensive to borrow money, and savings account APYs typically increase.

Because savings account APYs are variable, they tend to rise or fall in the wake of federal rate changes. There are some types of savings accounts with rates that are fixed for a period of time — such as fixed-rate certificates of deposits (CDs). However, federal funds rate changes influence the rates financial institutions offer their customers for new CDs.

Q: Do Other Factors Influence My Savings APY?

A: Federal funds rate changes have a substantial influence on saving account APYs — but they are not the only factor.

Some banks offer high-yield savings accounts with APYs that are considerably higher than the national average rate. Online-only banks and credit unions generally have less overhead than traditional brick-and-mortar banks, which may allow them to offer higher APYs.

Competition among banks for consumer deposits may also drive changes to the APYs they offer. Larger banks tend to be less dependent on deposits than those with a smaller regional presence, for example, so those smaller banks may offer higher rates to attract depositors.

Even among these different scenarios, however, the Fed’s interest rate adjustments can still influence whether these banks’ APY rates rise or fall over time.

Recommended: What Is a Good Interest Rate for a Savings Account?

Q: How Has the Fed Adjusted Rates Recently?

A: After the economic crisis of 2008, the Fed upheld a near-zero rate policy for seven years as the economy normalized. Rates began to tick up gradually in 2015 until the COVID-19 pandemic upended the economy in 2020. The FOMC followed with two steep rate cuts to encourage economic activity, at the time, bringing interest rates down to historic lows.

This maneuver worked, but also contributed to the highest inflation rate the U.S. had seen in decades. In response, the Fed initiated a series of fund rate increases, culminating in a rate of 5.25% to 5.50% in July 2023 — the highest rate in 23 years — which the Fed held in place in a bid to inch inflation toward its 2% target.

September, 2024, however, marked a major pivot in the Fed’s policy as they announced their first rate cut in four years: an aggressive 50 basis points, bringing the federal funds rate down to 4.75% to 5%, with additional rate cuts expected to be announced in upcoming FOMC meetings.

Federal Funds Target Rate (2015-2024)

Source: Federal Reserve Bank of St. Louis

Q: When Will the Next Rate Change Come?

A: The FOMC typically convenes eight times per year. Though it does not necessarily adjust rates at every meeting, the outcome of these meetings is always watched closely, due to the broad impact rate changes have on the national and even global economy. Given that the Federal Reserve’s September 2024 rate drop is expected to be the first in a series of cuts, investors and consumers will almost certainly be closely monitoring the FOMC’s next moves.

In addition, banks and financial institutions sometimes adjust their own interest rates ahead of FOMC meetings, especially when economic conditions or signals from the Fed suggest a rate change may be forthcoming. The Fed publishes the schedule of FOMC meetings on its website.

The Takeaway

While the FOMC sets the federal funds rate to directly influence the rates banks use to lend money to each other, the rate has a broader effect on the U.S. economy, impacting many financial services and products including personal loans, mortgages, and savings accounts.

Photo credit: iStock/Sadeugra

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOBNK-Q324-111

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) provides a secure communication network to financial institutions in order to communicate and facilitate cross-border transactions and payments.

The SWIFT system is a critical piece of infrastructure for the international banking system because it allows financial institutions to talk to one another securely. Without access to the SWIFT messaging network, banks are essentially shut out of the global financial system because they cannot speak to banks in other countries to agree to transaction and payment terms.

What Is SWIFT?

SWIFT doesn’t hold assets or move money around. Instead, it is a messaging system for banks and other financial institutions. When banks need to conduct business across borders with other financial companies, the SWIFT system allows them to communicate to one another in a secure and standardized manner to ensure reliable transaction terms.

The SWIFT messaging system relies on a standardized system of codes to transmit information and payment instructions. These codes are interchangeably called Bank Identifier Codes (BIC), SWIFT codes, SWIFT IDs, or ISO 9362 codes. Each member of the SWIFT network is assigned a BIC/SWIFT code, providing an efficient transfer of information during transactions.

The SWIFT codes are used so banks and financial institutions can communicate reliably. For example, a bank in the United States wants to make sure it is messaging the right bank in France to set up payment instructions before sending money.

Since SWIFT doesn’t send money, it requires banks to take additional steps to send money globally after communicating with their counterparty. This makes the whole process relatively slow and adds costs to the transfers. The advent of blockchain technology may alleviate these time lags and additional costs as the technology is adopted more broadly.

Format of BIC/SWIFT Code

These codes are unique and have 8 or 11 characters, identifying the bank, country, city, and branch.

•   Bank code (0-9 or A-Z): 4 characters representing the bank.

•   Country code (A-Z): 2 letters representing the country of the bank.

•   Location code (0-9 or A-Z): 2 characters of letters or numbers for the location of the bank.

•   Branch Code (0-9 or A-Z): 3 digits specifying a particular branch. This branch code is optional.

For example, Wells Fargo, with a branch in Philadelphia, has the 11-character SWIFT code PNBPUS33PHL. The first four characters reflect the institute code (PNBP for Wells Fargo), the next two are the country code (US), the following two characters specify the location/city code (33), and the last three characters indicate the individual branch (PHL). The last three characters are optional; if the bank is the head office, the code ends with XXX.

History of SWIFT

Telex was an early electronic communications system used in the post-World War II period, allowing businesses to send written messages across the globe. Before SWIFT, financial institutions used Telex to communicate with one another to ensure the successful transfer of international payments. However, Telex was slow, lacked security, and was prone to human error because it didn’t run on a standardized system.

To alleviate the problems of Telex, 239 banks from 15 countries joined forces in 1973 to develop a communications network that would provide safe, secure, and standardized messaging for cross-border payments. These banks formed the Society for Worldwide Interbank Financial Telecommunication and went live with the SWIFT messaging service in 1977. Soon, SWIFT was widely adopted and became the gold standard for cross-border messaging in the global financial system.

More than 11,000 financial institutions in over 200 countries use the SWIFT system to communicate. It processes tens of millions of messages per day, too. 

Who Controls SWIFT?

Based in Belgium, SWIFT is a member-owned cooperative, meaning that member institutions have stakes in SWIFT and the right to nominate directors to its governing board. This governing board is made up of 25 people from across the globe and overseen by the G-10 country central banks (Bank of Canada, Deutsche Bundesbank, European Central Bank, Banque de France, Banca d’Italia, Bank of Japan, De Nederlandsche Bank, Sveriges Riksbank, Swiss National Bank, Bank of England, USA Federal Reserve System), the European Central Bank, and the National Bank of Belgium.

Traditionally, SWIFT acts as a neutral party, so it doesn’t make any decisions on sanctions. However, because it operates under Belgian law and European Union regulations, SWIFT will adhere to sanctions imposed by the EU if necessary. This resulted in banks from Iran being kicked off the SWIFT system in 2012 because of the country’s nuclear weapon program. Additionally, in early 2022, several Russian institutions were kicked off of SWIFT after the country invaded Ukraine.

The Future of SWIFT

Because of SWIFT’s significant role in the global financial system, some believe that blockchain technology could circumvent the need to use the SWIFT network. Proponents of decentralized finance believe that these new technologies could increase global payments’ speed, security, and transparency. Just as SWIFT replaced Telex as the standard for messaging in the global financial system, some think that blockchain technology could do the same.

The Takeaway

SWIFT is a critical part of the global financial system. Without the secure messaging services of SWIFT, banks and other financial institutions would struggle to complete transactions and make payments in overseas business. However, the SWIFT system is relatively slow and costly for financial institutions. Even with the safe and secure messaging of SWIFT, cross-border payments and transfers between financial institutions can still take several days to complete. 

In a world that desires high-speed money transfers, this lag in transaction time can be burdensome to banks and other financial institutions. As new challengers in the global financial system, like blockchain technology, breakthrough and become a more mainstream part of the financial payments system, they could put pressure on the ubiquity of the SWIFT system and the overall global payments system.

Photo credit: iStock/Evgeniy Skripnichenko

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SOBNK-Q324-072