With the Fed poised to cut interest rates next week, the ripple effect will show up in certificates of deposit and high-yield savings accounts, which currently offer rates of more than 5%.
They aren’t likely to fall dramatically following a rate cut but rather ease back closer to 4% and linger above the inflation rate for at least the next year. So these accounts should still be your go-to for your emergency fund or cash set aside for short-term expenses.
That said, the Fed’s anticipated action offers an opportunity to make some money moves that take advantage of the downward tilt in interest rates.
“The projected cutting may pull the rug from under the high-yield savings rates,” Preston D. Cherry, founder and president of Concurrent Financial Planning, told Yahoo Finance. “Now might be the best time we've seen in a few years to swap cash in high-yield savings for long-term bonds to lock in a higher yield for income payments for lifestyle and retirement portfolios.”
Since 2022, when the Fed began to raise short-term interest rates, bank savings accounts have been a better place to park your cash than bonds. That’s set to change.
