Even With Interest Rates Dropping, High-Yield Savings Accounts Still Hold This Major Edge Over the Top CDs

The Federal Reserve recently slashed the federal funds rate for the first time in four years, which means borrowing money should become more affordable. The downside to this move is that savings account and CD interest rates will decline too.

Some see this as a sign that they should open a CD now before rates fall even further. That's one option to consider. But before you make your decision, you have to weigh the CD's guaranteed interest rates against the savings account's biggest perk.

It's hard to put a price on access to your cash

CDs lock in your interest rate for the whole CD term, but the tradeoff for this is that you lose access to your cash during this time. Technically, you can withdraw it early if you need to. But you'll pay an early withdrawal penalty. This is usually equal to several months of interest payments. It makes CDs less than ideal for emergency savings and cash you may need at some point during the CD term.

Savings accounts, on the other hand, generally let you withdraw your cash whenever you need to. Some banks impose a limit on the number of free monthly withdrawals, and this used to be required by federal law. The government waived that during the pandemic. Since then, some banks have done away with this or raised it above the previous limit of six monthly withdrawals.

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of January 6, 2025. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of January 6, 2025. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.40% Rate info The annual percentage yield (APY) is accurate as of Jan. 2, 2025, and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

Because of this freedom, savings accounts don't lock in your interest rate. You'll start earning less interest as soon as the bank drops its rates. But the difference might not be as significant as you think. If you have $1,000 in savings and rates drop from 4.50% to 4.00%, you're only getting $5 less per month. 

How to decide which account is right for you

The right type of account for you right now depends on what you plan to use that money for. You should always keep emergency funds in a savings account because you never know when you'll need them. It's usually wise to keep money you plan to spend in the next few years in a savings account, as well. 

If you go this route, choose a high-yield savings account from an online bank. This won't prevent you from experiencing rate cuts, but it'll ensure you continue to earn a rate that's above the national average. 

A CD is still an option if you don't need your cash in the next couple of years. But it's probably not your best bet for long-term savings. Consider investing these funds so you can earn a higher rate of return. 

A retirement account is a good choice for savings you don't plan to use for decades. It comes with valuable tax breaks that could save you money today or in retirement. However, if you expect to use your cash before age 59 1/2, consider keeping it in a taxable brokerage account instead. Unlike retirement accounts, these accounts don't charge you a 10% early withdrawal penalty if you're under this age. But they also don't offer the same tax breaks.

It's fine to spread your money between a few accounts, too. Just make sure you give some thought to the purpose of each chunk of money so you can best decide where to put it.