Borrowing costs are probably getting cheaper, which is bad news for savers.
The Fed is widely expected to cut rates by another 25 basis points on Wednesday, with the market pricing in one more rate cut by early 2026, according to the CME FedWatch tool, which tracks market expectations for Fed moves.
While this will lower borrowing costs for credit cards and loans, it also means that yields on savings accounts, certificates of deposit, and U.S. Treasuries are likely to fall as well.
The Federal Reserve’s benchmark (known as the federal funds rate) affects how much interest you can earn on these accounts. These yields generally move in conjunction with the federal funds rate, which hovers around its current range of 4.25% to 4.5%.
“If the Fed lowers rates, high-yield savings accounts will adjust almost immediately, so the best way to lock in your current yield is with fixed-rate CDs or individual government bonds,” says Alex Caswell, a certified financial planner at Wealth Script Advisors.
CD and Treasury rates won’t fall overnight, so savers still have a short window to take advantage of high yields. If you’re building up the funds you need for the next few years, compare these short-term savings options.
certificate of deposit
CDs are a low-risk way to earn a fixed income in exchange for locking up money you don’t need to spend right away for a set period of time (usually anywhere from a few months to five years).
CD rates typically move in conjunction with short-term Treasury yields, which are influenced by expectations for the federal funds rate.
The benefit of a CD is that you lock in a fixed interest rate. The tradeoff is access. You typically have to wait until the end of the term to withdraw your money, and if you withdraw early, you may end up paying a penalty that wipes out most of the interest you earned.
Investors expect long-term yields to decline as the Fed continues to ease, so short-term CDs currently pay the best interest rates at around 4.2% for six to 12 months, while long-term CDs for three to five years range from around 3.7% to 3.9%.
Typically, new CD offerings begin to decline within a few weeks after the Fed cuts rates.
US Treasury
Treasury bonds are bonds issued by the federal government that pay a fixed interest rate over a fixed period of time. They are considered one of the safest investments because they are backed by the US government, where the probability of default is considered very low.
Unlike CDs, you can sell before maturity without a withdrawal penalty, but if market rates rise you could get less than you paid. Additionally, the interest you pay is exempt from state and local taxes.
While the Treasury issues bonds with up to 30 years, most savers focus on shorter-term Treasury bills with maturities of four weeks to one year, or Treasury bills with maturities of two to five years. The yield on short-term government bonds is currently just under 4%, slightly higher than the mid-3% range on 2- to 7-year bonds.
Treasury yields are closely tied to market expectations for the federal funds rate and are often adjusted before and after the Fed changes its policy rate. When the Fed acts, short-term yields typically adjust almost immediately, often within a day, while long-term yields change more slowly.
You can purchase U.S. Treasuries directly through TreasuryDirect.gov or most brokerage accounts.
High-yield savings account
Interest rates on high-yield savings accounts are variable, so they can change at any time and are likely to drop shortly after the Fed’s next rate cut. Some banks try to stand out by offering cash bonuses or limited-time offers for new customers, but you typically need a minimum balance of several thousand dollars to qualify for these deals.
That said, cash bonuses can still be valuable because they help offset the interest you’re likely to earn once interest rates start falling, Caswell says.
“A high-yield savings account is certainly better than nothing,” says Caswell. “Even if the adjustment reduction happens very quickly, you’ll still end up paying more than you would with a regular bank account.”
According to Bankrate, online banks currently pay around 4% to 4.5% annual interest, while savings accounts have an average annual interest rate of 0.63%. According to Fidelity, these accounts are great for keeping money accessible for emergencies or short-term goals because you can withdraw funds at any time without penalty.
HYSA doesn’t allow you to lock in your rates, but that’s not necessarily a drawback. It’s not just the yield that’s important, it’s also the amount you save that fits your schedule. “When you need the money is far more important than the interest rate you receive,” says Jeremy Keil, a certified financial planner with Keil Financial Partners. “You lock in based on when you need the money, not the interest rate.”
Editor’s note: This article has been updated to clarify that the likelihood of the U.S. government defaulting on its obligations is considered very low.
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