Despite the Federal Reserve keeping interest rates on hold for a year, it now appears poised to start lowering them next month.
Because CDs guarantee a certain rate over the term of the deposit, banks and credit unions often start lowering their yield on new CDs once they have confidence that the Fed will cut rates – and sometimes before the Fed has even announced an action.
Savings account rates might hold on longer, however, since these are a ‘right now’ rate that can be quickly adjusted each time the Fed moves.
If you can find a bit of cash to commit to one of the best CDs available today, you’ll lock in an awesome return of up to 5.50 per cent for months or years to come – regardless of how often the Fed cuts rates.
The best high-yield savings accounts also pay up to 5.50% right now.
The full article continues below these offers from our partners.
The Fed Is Still Holding Steady—But With a September Rate Cut Expected
A week ago, after raising rates 10 times in a row last year in what was the largest hike in 2022-23 to tamp down decades-high inflation, the Federal Reserve once again held rates steady.
For those who have buckets of cash in the bank, this higher benchmark rate has created a boom time. That’s because the fed funds rate sets the rates that banks and credit unions are willing to pay on savings, money market and certificate of deposit ( CD rates hit a , while this spring and savings account rates hit a
Still, with inflation cooling, the Fed could step off the rates accelerator, cruise at a high fed funds rate for the better part of a year, which in fact is now the case. And now inflation has cooled even more. The Fed can thus soon brake, and those rate cuts now are projected to begin with its next meeting on rates on 18 September.
CD Rates Likely to Start Falling Before the Fed Moves
For a rate-hold, like the one we are experiencing, and where the next meeting is not far from now and expected to result in a cut, many banks and credit unions have already begun to trim CD rates a small amount. For whatever term your CD is, whether it is a short-three-month term or a 5-year term with an expiration year of 2029, the CD rate will be set.
So, when it looked like the federal funds rate could go higher, banks and credit unions were willing to lock in rates well into the future. If those CDs are profitable, they don’t care if they get stuck paying higher rates they’ll wish they hadn’t months or years down the road. However, the Fed has signalled rate cuts – so now institutions aren’t willing to lock in rates well into the future.
This is why rate-locking features of CDs are so popular with banks and credit unions. As soon as they have confidence that the Fed is going to make a rate cut, they start reducing rates. If it seems certain to them that the central bank will make a rate cut in the near-term, why wait for an official Fed announcement?
That’s why as soon as inflation projections declined at last week’s Fed meeting, making a September rate cut more likely, rates started to slip a bit. So far, that slight dip has been modest, with nearly six weeks left to go before the Fed’s next meeting. Moreover, multiple scheduled readings on inflation will come out before the Fed meets in September; the actual data could well impact the Fed’s rate decision, and there’s nothing certain yet.
Savings Account Rates May Hold On Longer
Savings account rates have a slightly different tenor because a bank or credit union can cut them at any time. Since a high-yield savings account has no commitment to the rate that a CD provides, we see high-yield savings accounts move with the fed funds rate for longer.
The best nationally available savings account rate remained at 5.55 per cent for several months after April and only decreased to 5.50 per cent APY after the Fed’s meeting announcement late last week.
Because there’s no market attached to the savings rate a bank quotes you, it can lower the rate whenever it feels like, as often as it wants, and almost always does. That’s why savings account rates decline rather gradually, parallel to the federal funds rate.
Days Are Numbered on 5.50% Savings Account Rates
Given that his reward for waiting is an expectation of a Fed cut six weeks from now, that savings account rate should come down sooner than later. By the end of next year, if the Fed cuts its target by half a percentage point or more, rates in the highest-paying savings accounts are unlikely to be above 5 per cent in 2025.
Open a CD Now to Guarantee Your Rate Until 2026 or Beyond
If you can carve out some portion of your savings to leave alone for a while now, this is a good time to put some more money into a CD. Near-term CD rates are almost certain to be much lower a few months from now, and rates on savings accounts are declining as well. Your future self can earn a much better rate by locking in one of today’s rates for the future.
For these short terms you can earn up to 5.50 per cent, for mid-terms (5.00 to 5.15 per cent) and for long CDs (upper-4 per cent returns). Sure, a multi-year CD might pay a bit less – a tip-top short-term rate is 6.00 per cent – but the Fed might continue to cut rates into the years 2025 and 2026; a CD that pays a rakish rate for you until 2026, 2027 or even 2029 is likely to pay you handsomely in a year or two from now.
Daily Rankings of the Best CDs and Savings Accounts
How We Find the Best Savings and CD Rates
Using daily figures for more than 200 banks and credit unions that offer CDs and savings accounts across the United States and ranked by their rate, Investopedia provides daily lists of the best-paying accounts. To be eligible for our rankings, an institution must be federally insured (FDIC for banks, NCUA for credit unions), with no initial deposit higher than $25,000 and no maximum deposit below $5,000.
To qualify as nationally available, banks must be available in at least 40 states. And while some credit unions require you to make a donation to a specific charity or association to join – if you don’t meet other eligibility criteria, such as living in a certain area or working in a certain kind of job – we don’t include credit unions whose donation requirement is $40 or more. To learn more about how we pick the top rates, read our full methodology.