The Fed Cut Rates but Is Just Getting Started -- Here's What CD and Savings Account Interest Rates Could Do in 2025

As you may have already seen, the Federal Reserve cut interest rates for the first time since 2020, when it made an emergency rate cut at the onset of the COVID-19 pandemic. Specifically, the benchmark federal funds rate was lowered by 50 basis points, or half of a percentage point.

While you might notice your high-yield savings account interest rate fall or a drop in the certificate of deposit (CD) rates banks are offering, the reaction is likely to be mild and in line with the Fed's rate cut -- for now. For example, if your bank has been offering a 4.5% APY on a high-yield savings account, it wouldn't be shocking to see the rate fall to closer to 4%.

However, it's important for consumers to know that the Fed's rate cut isn't expected to be a one-time action. In fact, this is widely expected to be the first in a series of rate cuts over the next year at a minimum, and this could have big implications for savings account and CD interest rates.

The first cut in a rate-cutting cycle

When the Fed cut rates just recently, it lowered the target range on the federal funds rate by 50 basis points (0.50%) to a range of 4.75%–5%. You don't necessarily need to know the target range or what it means, but the important takeaway is that there's a lot more room for rates to fall.

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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.

Along with its rate cut decision, the Fed also released its own future projections. The voting members of the Federal Reserve see rates falling another 50 basis points by the end of 2024, and by yet another 100 basis points (1%) by the end of 2025. In other words, interest rates are expected to be two full percentage points lower by the end of next year compared to where they recently were.

What will this mean for savings accounts and CDs?

The short answer is that savings account and CD interest rates don't directly depend on the Fed's moves, but they tend to move in the same direction. So, as the Fed continues to lower rates, it's fair to expect that high-yield savings interest rates paid by the top online banks will roughly move by the same amount.

CDs are a little more complicated. Shorter-term CDs (usually terms of 18 months or less), tend to track the Fed's interest rate moves quite closely. On the other hand, longer-term CDs tend to have rates based on future expectations for interest rates, which really have not changed much. So their direction could certainly be lower, but the move is likely to be less sharp than with short-term CDs.

What should you do?

Like many personal finance topics, the answer is "it depends." If you have money in your savings account you aren't likely to need for a while, it could be a smart idea to open a CD to lock in today's interest rates for a certain amount of time. It could be a good time to start a CD ladder while shorter-term CD rates are still relatively high.

Or, if you currently have money invested in CDs, it could make sense to rotate some of your money into higher-potential investments (like stocks or ETFs) in a brokerage account since CD rates could fall.

The bottom line is there is no perfect solution to the problem of falling CD and savings interest rates. But there's also no rush. While rates are expected to come down significantly, they are also expected to do so over an extended period, so you have time to plan your next financial moves.