Prediction: High-Yield Savings Account Rate Cuts Are Just Around the Corner

High-yield savings account interest rates climbed from a low of about 0.30% during the pandemic to a whopping 5.00% APY as the government fought to ease inflation. Over the last few years, though, little has changed. Rates remain high and savers have enjoyed being able to earn hundreds or even thousands of dollars per year in interest.

But that's not going to last for much longer. I think we have just a few more weeks before savings account interest rates start to fall. Here's what that means for you.

Why savings account interest rates are going to fall

Banks are free to set their own interest rates, but they tend to follow a government benchmark: the federal funds rate. This is an interest rate that banks use to lend money to each other and it's one of the main tools the Federal Reserve has at its disposal to encourage or discourage spending. 

When the federal funds rate rises, bank interest rates tend to rise as well. This is true for both loans and deposit accounts. This sort of rate environment is great for savers and tough for borrowers. We usually see this happen when inflation is high, as it has been over the last several years. 

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 8, 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 8, 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.

When inflation starts to cool, the government is apt to cut the federal funds rate. This is what we're seeing now. Most experts expect that the Federal Reserve will make its first rate cut in four years when it meets again in mid-September. It's unclear how big the cut will be. Usually, it's 25 basis points (0.25%), but the Fed has made larger cuts occasionally in the past. 

What it means for you

Once the Fed cuts rates, it usually doesn't take banks long to follow suit. Borrowing becomes more affordable and savers earn less on their money each month. But it's worth noting that your interest rate drop may not correspond exactly with the federal funds rate. For example, if the Fed issues a 25 basis point rate cut, your savings account interest rate may drop by 20 or 30 basis points. That's up to your bank.

There are a few ways you could handle this. The first is to simply do nothing. You will earn a smaller amount of interest on your savings account funds, but you'll retain the easy access that savings accounts provide. And if you have a high-yield savings account, you'll still earn a higher rate than what you could get with most brick-and-mortar banks.

If you really don't want to sacrifice your high interest rate, you could try a certificate of deposit (CD) instead. These lock in your interest rate for the full term, which can be anywhere from a few months to several years. In exchange, you agree not to touch your funds for the full length of the CD term. If you're comfortable with this tradeoff, a CD may help you earn more on your savings for now.

You could also split your money between both. Put short-term savings and your emergency fund in a savings account and move money you don't plan to spend in the next couple of years into a CD to earn a higher interest rate.

One point to note is that, while many people expect rate cuts to begin in September, it's probably not going to be the only one. We'll probably see more throughout the last few months of 2024 and into 2025, so keep this in mind as you make your decision.