Here’s why it’s still a good time to open a high-yield savings account

The Federal Reserve recently cut interest rates for the first time since early 2020, and rate cuts are expected to continue gradually for the foreseeable future, impacting bank accounts, loans, credit cards and more. For this reason, many consumers fear that the best time to start a high-yield savings account has passed.

I’m not so sure. Although APRs on high-yield savings accounts are expected to decline across the board as the Fed continues to cut interest rates, the environment for these accounts could be better than you think.

Will Fed Rate Cuts Impact Savings Account Returns?

The short answer is: yes. As the Federal Reserve lowers its key interest rate, it is expected that interest rates on high-yield savings accounts will also tend to fall. In fact, we’ve already seen several top online banks lower their savings returns. However, it might not be as dramatic as you expect.

The Federal Reserve cut interest rates by 50 basis points, or half a percentage point, and as a personal example, my bank shortly thereafter lowered the maximum interest rate on its high-yield savings account by 20 basis points (0.20%).

Of course, this is just one example, but the point is that there is not a one-to-one relationship between Fed rate cuts and high-yield savings account rates. My bank cut interest rates, but to a lesser extent than the Fed cut rates.

And in the context of recent history, my savings account’s APR of 4.30% is still solid. As of this writing, nearly a month after the Fed cut interest rates, some of the top high-yield savings accounts on The Ascent’s radar are still boasting yields as high as 5.15%.

If you are curious about how much return you can get from your savings, Check out our updated list of the best high-yield savings accounts.

How far will interest rates fall?

Of course, this was just the first in a series of Fed rate cuts that are expected to last at least through 2025. According to CME Group’s FedWatch tool, which shows interest rate expectations priced into financial markets, the median expectation is another 50 basis points of rate cuts by the end of 2024 and another full percentage point by the end of 2025 – a total of 1.50% compared to the current benchmark – Level.

So while I would expect banks to continually lower savings account rates as part of the rate cutting cycle, I expect the overall pace of savings account rate cuts to be a little slower than the Fed’s moves.

Of course, I don’t have a crystal ball and each individual bank can set its own interest rates, but if your high-yield savings account has an APR of 4.50% today, it would be surprising if the rate fell below the mid-3.00%. Reach until the end of 2025.

In short: While savings rates have certainly begun to decline and will likely continue to do so, there is virtually no expert predicting that the near-zero interest rate environment we saw in 2020 and 2021 will return any time soon .

The best way to maximize the return on your cash while maintaining flexibility is with a high-interest savings account. If you have cash that you don’t expect to need for a while, high-interest CDs are still available to save you money. Lock in a guaranteed interest rate before the Fed cuts rates again.