The Fed Just Issued a 0.50% Rate Cut. Here's What That Means for Your Savings Account

Unless you're a finance nerd, you may not have heard that the Federal Reserve slashed the federal funds rate by half a percentage point on Sept. 18. Or you may have heard about it and wondered what all the fuss was about. The federal funds rate is simply the interest rate that banks charge each other when they need to borrow money overnight.

But this rate cut -- the first in four years -- is already having ripple effects that will touch many aspects of our financial lives. Everything from mortgages to bank accounts will change over the next few months. Here's what you can expect when it comes to your savings account.

Rates are already falling with more cuts on the way

The federal funds rate doesn't influence consumers directly, but many banks use it as a benchmark when setting rates on their products. This is great for those seeking new loans or loan refinancing. Interest rates fall and borrowing money becomes more affordable.

But slashing the federal funds rate causes rates on bank accounts, like savings accounts and certificates of deposit (CDs), to fall as well. For the last year or so, we've been enjoying ridiculously high rates of around 5.00%. That's put hundreds of dollars in savers' pockets. But we're already seeing those rates start to come down.

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.

Since savings account interest rates are variable, they react quickly to these changes. Banks typically lower their rates within a few days or weeks of a Fed rate cut. And you'll see those lower rates reflected in lower interest payments beginning with the current billing cycle.

It's disappointing for those who were raking in large interest payments, but the effects for many people won't be huge. If you were earning a 5.00% APY over the last year on a $1,000 balance, you'd earn $50 in a year. If you average a 4.00% APY over the next year, you'd only get $10 less in interest.

How to decide if a savings account is still the best place for your money

More rate cuts are likely coming in 2025 and possibly even later this year. But that shouldn't stop you from keeping at least some of your cash in a savings account. This is your best choice for emergency savings and cash you plan to spend in the next few years. You're free to access your money whenever you need it without fear of loss.

However, it's worth opening a high-yield savings account if you don't already have one. Brick-and-mortar bank accounts typically offer very low APYs -- generally 0.01% -- regardless of what the federal funds rate does.

High-yield savings account rates, though they may drop over the coming months, will be significantly higher than this. The Discover® Online Savings account is a great example. Even after the recent rate cut, it's still offering 3.75% APY. That could earn you more than $40 on a $1,000 balance in a year.

If you're really concerned about falling interest rates, you might consider investing some of your cash in either a CD or the stock market. If you plan to lock in a high rate on a CD, now's a great time to do it. LendingClub CDs still offer rates as high as 4.80%. But they won't last long.

However, you could earn a lot more by investing in the stock market. This is usually the better choice for long-term savings.

Feel free to spread your money between several accounts as well. Each has its own strengths and weaknesses, and leveraging these can help you grow your wealth as quickly as possible while keeping the cash you do need close at hand.