Prediction: Savings Account and CD Rates Will Fall Again Next Month

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Savings account interest rates have fallen rapidly over the last month following the Federal Reserve’s 0.50% federal funds rate cut on Sept. 18. It’s the first of what’s expected to be a rate-cutting cycle that lasts into 2025.

The next rate cut is likely just a few weeks away, and you’ll once again feel its effects on your savings account pretty quickly. So now is a great time to review the accounts you’re currently using and consider changes that could help you maximize your gains over the coming months.

How the Fed rate cuts affect savings account and CD rates

The Federal Reserve uses the federal funds rate — the interest rate banks use when lending money to other banks overnight — as a way to manage inflation. When the rate of inflation is high, it raises the federal funds rate in an attempt to curb spending, and when inflation cools, it lowers rates again.

We’re in the latter half of that cycle right now. The federal funds rate doesn’t directly affect savings account and certificate of deposit (CD) rates. But banks use it as a benchmark when determining what rates to charge their own customers. So when the federal funds rate dips, bank account rates tend to fall too.

You notice the difference with savings accounts right away because they have variable interest rates that can change at any time. After a rate cut, you’ll probably receive lower interest payments as soon as the next month.

The difference you’ll see in your interest payments depends on your bank and how much you have in the account. The size of the rate cut matters too, though there isn’t a direct correlation between the Fed rate cut and the drop in your savings account APY.

CD owners may not feel the effects of a rate cut immediately. That’s because these accounts typically have a guaranteed interest rate for the full CD term. This can be anywhere from a few months to several years. However, new CDs opened after a rate cut usually pay a lower APY. So this makes now a great time to lock in a high CD rate if you’re interested in one.

Marcus by Goldman Sachs offers competitive rates with minimum deposits of just $500 to open an account. That’s lower than what many competitors require. Check out its CDs if you’re looking to secure an above-average rate before the next Fed cut.

Two more rate cuts are likely coming in 2024

The Federal Reserve will meet twice more in 2024 — Nov. 6-7 and Dec. 17-18. Experts believe the Fed will cut rates by 0.25% at each meeting. This will likely be followed by four more cuts throughout 2025.

Again, this doesn’t mean that your savings account rate will fall by a perfect 0.50% this year, though it’ll probably be pretty close. If you don’t like the sound of that, you could put some of your savings in a CD right now. However, this isn’t a good idea for savings that are part of your emergency fund or money you plan to spend within the next few years.

Those earning less than about 4.00% APY on their savings account funds right now can lessen the blow of these rate cuts by moving to a high-yield savings account. Rates will drop on these as well, but since they’re so much higher than the 0.46% national average to begin with, the dip may not bother you that much.

There are plenty of great savings accounts out there, but I recommend the Discover® Online Savings account. It’s the one I use and it’s currently paying 4.10%. That’s nearly nine times the national average. Plus, it doesn’t charge me any maintenance fees so I never have to worry about losing money with it. It’s definitely worth a few minutes of your time. Click here to explore its features to see if it could help you boost your wealth.