Here's Why I'm OK With My Savings Account Interest Rate Dropping

After several years of high inflation, the Federal Reserve finally slashed the federal funds rate by 0.50% on Sept. 17, 2024. It's expected to be the first of several rate cuts throughout the next year.

On the one hand, it's a positive sign that inflation is cooling, and it makes borrowing money more affordable. But savers are likely to be disappointed as savings account and certificate of deposit (CD) rates fall from their highs of around 5.00% APY. I'm a little disappointed by that, too, but not enough to move my money around. Here's why.

Why interest rates are dropping

To be clear, a reduction in the federal funds rate doesn't directly trigger a drop in bank account rates. But since banks typically base their interest rates on the federal funds rates, the two often move hand in hand. I'd expect in the next couple of weeks, we'll see the rates available on savings accounts and new CDs tick down a little bit.

Those who currently own CDs likely won't see a change. Most CDs lock your rate in for the full term, so they'll continue earning the high rate they already have been. Rates on new CDs will drop, though. And savings account owners could feel the effects of the rate dip soon.

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.

It probably won't be substantial at first. If your rate drops from 5.00% APY to 4.50% APY, you probably won't notice a significant difference in your monthly interest payments unless you have a lot of money in your account. But it's important to remember that this is the first of what will likely be several rate cuts over the coming months.

There's no telling exactly how low rates will go. During the COVID-19 pandemic when savings account rates were at their lowest during the last few years, high-yield savings accounts bottomed out around 0.30% APY. And many savings accounts offered by brick-and-mortar banks will continue to offer 0.01% APY, no matter what.

So it's tough to say exactly what the effect will be to those with high-yield savings accounts over the next year. But it's a pretty safe bet that you'll receive smaller interest payments than you've gotten used to.

Why I'm keeping my savings account anyway

In spite of this, I'm choosing to hold on to my high-yield savings account for the foreseeable future. That's because I value easy access to my cash over locking in a high rate on a CD.

Part of the money in my savings account is an emergency fund I may need to access at any time. If I locked up that money in a CD, I might have to pay a penalty if I end up withdrawing the funds early, and I'd rather not do that.

I also prefer to invest my long-term savings rather than keep them in a CD. There's a risk of loss there, but there's a chance to earn even more than what the best CD rates today can offer. That's a risk I'm willing to take to grow my wealth over the long term.

A CD can be a good option

But I can see where a CD could be the right choice for some people. If you have savings that aren't part of your emergency fund that you're not comfortable risking in the stock market, a CD could be a good place to put your cash for now.

If you're interested in doing this, I'd act quickly before CD rates drop any further. You can also split some of your savings between a savings account and a CD if you're not comfortable putting all your eggs in one basket.