The Fed Rate Cut Will Hurt Your Savings Account Rates, but It Comes With a Huge Upside

The Federal Reserve recently cut the federal funds rate for the first time in four years. Banks use the federal funds rate as a guide in setting their own rates on everything from savings accounts to mortgages.

We're already seeing some shifts, but there are even more on the way. Experts predict several more rate cuts throughout 2025 and possibly another one in 2024. It's bad news for savers, but the downside of lower savings account interest rates could be offset by other positive changes.

Fed rate cuts are bad news for savers

The Fed slashing interest rates tends to lead banks to cut their rates too, so savers earn less in interest each month. The latest rate cut was half a percentage point -- bigger than the standard quarter-percentage-point cut. But there's no guarantee that your bank account's interest rate will drop by the same amount. Banks still have some discretion in the rates they set.

When banks lower their rates, you notice it in your savings account pretty quickly. These accounts accrue interest daily but pay it monthly, so you'll start getting less as soon as your next interest payment. However, the difference will probably be negligible unless you have a lot of money in savings. If you only have $1,000 in your account, for example, a drop from 5.00% APY to 4.50% APY will only cost you about $5 per year.

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.

CD owners won't notice any immediate difference because CDs lock your rate in for the full term. But if they hope to renew when their existing term ends, they'll find much lower rates. If you're hoping to lock in a high rate on a new CD, it's best to act on this soon before rates drop further.

LendingClub CDs are still offering rates as high as 4.00%, so it's a great option for those who want to take advantage of still-competitive APYs.

But they're great news for borrowers

Fed rate cuts also lower rates on loan products. This includes mortgages, auto loans, and personal loans. Credit card interest rates may also drop a little. The savings that could result from these decreases are probably more substantial for most people than a few dollars lost in savings account interest.

Those who took out a loan over the last few years may want to think about refinancing to save money, but it's best to wait until 2025 to do this. More Fed rate cuts are coming and this will drop interest rates even further. Since refinancing is time-consuming and you have to pay closing costs again, it's best to only do it once during this rate-cutting cycle.

There's no telling exactly how far rates will fall or when the cuts will occur. Keep an eye out for future cuts and consider waiting until the middle of 2025 or so to make any major changes to your loans. If you have any questions, check with your mortgage lender to determine the best course of action for your situation.