Here's Exactly How the Fed's Rate Cut Has Affected CD Rates

As you probably know by now, the Federal Reserve cut its benchmark interest rate in September. Not only was this the first rate cut in the United States since March 2020, but it was a significantly more aggressive rate cut than many experts had anticipated.

Many people (correctly) believed that high-yield savings account and certificate of deposit (CD) rates would fall in response to the rate cut. Now that the rate cut is more than a month in the past, let's compare some of the CD rates from top online banks both before and after the rate cut.

With many more rate cuts expected, it could be a smart idea to lock in today's CD rates. Click here for our updated list of the top CD rates right now.

CD rates: Before and after

When analyzing CD rates and the effects of rate cuts, it's important to separate the discussion into short-term CDs (say, 18 months or less) and long-term CDs.

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 December 28, 2024. 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 December 28, 2024. 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 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 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.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 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.

In simple terms, short-term CD rates tend to be highly reactive to the current interest rate environment. It isn't a coincidence that the Fed set the benchmark federal funds rate at a target range of 4.75%–5.00%, and the top 1-year CD rates on our radar are in the mid-4.00% range.

When the Fed raises or lowers interest rates, 1-year CDs tend to move quickly in the same direction and by roughly the same magnitude. Here are some 1-year CD yields from top online banks, both before and after the Fed's September rate cut.

• As of late July 2024, over a month before the Fed's half-percent rate cut, Discover® Bank was offering 1-year CDs with a 4.70% APY. Today, the published rate is 4.00%.
• Quontic was advertising 1-year CDs with a 4.50% APY before the Fed cut rates. As of this writing, Quontic's 1-year CD APY is 4.00%.

In both cases, you can see how the CD rates declined in line with the Fed's rate cut.

But for longer-term CDs, rates are generally driven by expectations of future interest rates, as opposed to the current environment or any individual rate cut that takes place.

Even so, when the Fed decided to cut rates a bit more aggressively than expected in September, it shifted expectations for future rates, and therefore impacted many 5-year CD rates. For example:

• In mid-August, Discover® Bank was offering a 3.75% APY on its 5-year CD. As of this writing, it has a 3.40% APY.
• Quontic was paying 4.30% on its 5-year CD a few weeks prior to the rate cut. Its 5-year CD yield has since been slashed to 3.00%, perhaps as the bank plans for further rate cuts.

The bottom line

As mentioned, the September rate cut is expected to be the first in a multi-year series of rate cuts. The latest economic projections from the Fed call for a total of two full percentage points of rate cuts between now and the end of 2026.

There's no way to predict with accuracy whether the Fed's rate cuts will follow the expected trajectory or how they could impact CD rates even if they do. After all, there isn't a direct relationship between the federal funds rate and CD yields.

But it's fair to assume that shorter-term CD yields will generally gravitate lower over the next couple of years, while the yields paid by longer-term CDs will largely depend on how the expected path of interest rates changes over time.