Here's Why It's Still a Great Time to Open a High-Yield Savings Account

The Federal Reserve recently cut the federal funds rate for the first time since early 2020, and the rate cuts are expected to gradually continue for the foreseeable future, impacting bank accounts, loans, credit cards, and more. Because of this, many consumers are worried that the best time to start using a high-yield savings account has passed.

I'm not so sure. Although we are likely to see high-yield savings account APYs move generally lower as the Fed rate cuts proceed, the environment for these accounts could hold up better than you think.

Will the Fed's rate cuts impact savings account yields?

The short answer is yes. As the Federal Reserve lowers its benchmark interest rate, it's fair to expect that high-yield savings account interest rates will trend lower as well. In fact, we've already seen several top online banks lower their savings yields. However, it might not be as dramatic as you expect.

The Federal Reserve lowered interest rates by 50 basis points, or half a percentage point, and as a personal example, my bank lowered the maximum interest rate on its high-yield savings account by 20 basis points (0.20%) soon after.

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 1, 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 1, 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.

Of course, this is just one example, but the point is that there isn't a one-to-one relationship between the Fed's rate cuts and high-yield savings account interest rates. My bank lowered rates, but to a lower extent than the Fed's rate cut.

And in the context of recent history, my savings account's APY of 4.30% is still solid. As of this writing, nearly a month after the Fed's rate cut, some of the top high-yield savings accounts on Motley Fool Money's radar still have yields as high as 5.15%.

If you're curious how much yield you can still get from your savings, check out our updated list of the top high-yield savings accounts.

How far will rates fall?

Of course, this was just the first in what is expected to be a series of Fed rate cuts lasting through at least 2025. According to the CME Group's FedWatch Tool, which shows the rate expectations priced into financial markets, the median expectation is for another 50 basis points of rate cuts by the end of 2024, and another full percentage point by the end of 2025 -- so a total of 1.50% from current benchmark levels.

So, while I would expect banks to steadily lower savings account rates as the rate-cutting cycle continues, I would expect the overall pace of savings account interest rate reductions to be somewhat slower than the Fed's moves.

Of course, I don't have a crystal ball and each individual bank can set its own rates, but if your high-yield savings account has a 4.50% APY today, it would be surprising if its rate dropped below the mid-3.00% range by the end of 2025.

In a nutshell, while savings rates have certainly started to drift lower and are likely to continue to do so, there is virtually no expert who is predicting that the near-zero interest rate environment we saw in 2020 and 2021 will return anytime soon.

The best way to maximize the yield from your cash while maintaining flexibility is through a high-yield savings account, and if you have cash that you don't foresee yourself needing for a while, high-yield CDs are still available that can allow you to lock in a guaranteed rate before the Fed makes any further cuts.