The Federal Reserve is expected to cut interest rates by 0.25% at the next meeting in September, and it will have an impact on your savings account. Both high-yield savings accounts and CD accounts are currently offering rates well above 4%, and in some cases, 5%, but rates won’t remain this high for very long. While cuts to the federal funds rate won’t impact CDs directly, banks will usually follow suit and change rates accordingly.
One rate cut isn’t likely to cause a drastic drop in rates right away, but more cuts are expected throughout the rest of the year and 2025, as the Fed incrementally drops rates from their 23-year high. So if you’re looking to take advantage of rates while they’re still this high, you’ll want to act soon.
Since high-yield savings accounts have variable rates, meaning they fluctuate with the market, you won’t be able to lock in a steady rate with one of those accounts. On the other hand, CDs offer a fixed APY, letting you secure high rates until the CD matures. Opening a longer-term CD can be an easy way to maximize the amount of interest earned on your savings, but you’ll need to be careful when choosing a term length.
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Best CDs to check out before a Fed rate cut
Since savings rates will soon fall in tandem with the federal funds rate, locking in high rates for as long as possible is an appealing option right now, before the next Fed meeting. But you’ll need to be prepared to lock your cash away for the full term, or you could offset any earned interest by paying an early withdrawal fee.
If you already have an emergency fund and can commit to setting aside extra cash for a year or more, consider the following CDs, which can help you earn a fixed, predictable rate of return on your savings:
Merchant’s Bank
Maturity: 1 year
APY: 5.25%
Minimum opening deposit: $1,000
One of the highest earning 1-year CD accounts is offered by Merchant’s Bank. The CD has an impressive APY of 5.25% and a reasonable minimum opening deposit of just $1,000.
If you were to put $5,000 in the CD initially, once it matured you’d earn $262.50 in interest, leaving you with $5,262.50 after one year — a fairly reasonable time frame to lock up your cash.
Pima Federal Credit Union
Maturity: 5 years
APY: 4.50%
Minimum opening deposit: $250
The longer you keep your money in a CD, the more interest you’ll earn. If you’re OK with the longer time commitment, consider opting for a 5-year CD.
The highest-yielding 5-year CD we’ve found is offered by Pima Federal Credit Union and earns a 4.50% APY. If you put $5,000 in the account, after five years you’d have $6,230.91, earning $1,230.91 in interest.
The Federal Savings Bank
Maturity: 3 years
APY: 4.60%
Minimum opening deposit: $5,000
If five years is a bit too long, consider a 3-year CD. Maybe you have a specific savings goal in mind — you might be planning on purchasing a new vehicle or paying for your grandkid’s wedding in three years — and are looking for a risk-free way to grow your savings.
The highest-yielding 3-year CD we’ve found, offered by the Federal Savings Bank, has an APY of 4.60% and a minimum opening deposit of $5,000. If you put $5,000 in the account, after five years you’d have $5,722.23, earning $722.23 in interest.
INOVA Federal Bank
Maturity: 5 months
APY: 5.40%
Minimum opening deposit: $200
Across all term lengths, the highest CD account we’ve found, offered by INOVA Federal Bank, has an impressive APY of 5.40%. However, it’s only a five-month CD, meaning you won’t secure high rates for very long before the CD matures.
But it could be a good way to earn some extra cash without locking away your money for very long at all. If you put $5,000 in the account, you’d have $5,088.43. That’s an extra $88 after just four months.
You can also use our tool below, powered by Bankrate, to compare CD rates today:
Bottom line
Opening a CD account can be an easy way to earn a guaranteed return on your savings, especially if you lock in rates before they drop after the Fed’s upcoming rate cut. According to the Kiplinger inflation outlook, if the Fed does not cut rates on September 18, it is expected to do so at its policy meeting right after the November 5 election.
But before you open a CD, you’ll need to choose a term length that makes sense for you. If you're unsure, compare 1-year vs 5-year CD accounts for more information.
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