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CDs vs. high-yield savings accounts: What to consider if the Fed cuts rates
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With the economy improving and inflation down quite a bit since its peak a few years ago, some experts think that the Federal Reserve could cut interest rates later on this year. Should that happen, rates on high-yield savings accounts and certificates of deposit (CDs) are likely to fall, too. Opinions on rate cuts in 2024 are mixed, however, as the inflation rate has ticked back up over the last couple of months.
Still, if rate cuts do occur, they could have a big impact on these types of deposit accounts. Right now, the average regular savings account offers just 0.46%, but it’s easy to find high-yield savings accounts offering rates that are 10 to 12 times higher than the rates offered on regular savings accounts. And, depending on the CD term, rates on CD accounts can be even higher than what’s being offered on high-yield savings accounts. So a rate cut in the future could mean earning less on these types of accounts.
But how far will these rates fall if the Fed makes that move? And will both types of accounts be affected similarly?
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CDs vs. high-yield savings accounts: What to consider if the Fed cuts rates
Here’s what you need to know — and which option you should focus on to be prepared if the Fed cuts rates.
The fall has already begun
The Fed has indicated over the last few months that rate cuts could be on the horizon. As such, some banks have already started adjusting savings rates in preparation.
“Savings account rates and CD rates have already started to fall just due to the expectation that the Fed will start cutting rates sometime this year,” says Ken Tumin, president of bank review platform DepositAccounts. “The fall of online deposit rates in the first quarter of 2024 shows that banks will likely cut rates quickly when the Fed starts cutting.”
Those cuts could be drawn out, too.
“Based on current data, it appears likely that the Fed will cut rates this year by one to three times at about 0.25% each time. It appears they have the ability to be patient, and history shows that the risks of moving too fast, especially when the labor market is holding at the target level and the economy is growing,” Stacy Johnson, senior portfolio manager at TIAA in Minneapolis, explains.
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Lower savings account rates will be felt faster
Both savings account and CD rates will fall once the Fed starts making its moves, but experts say it’s likely savings account rates will drop faster. This is because rates on these accounts are variable, and banks can implement them immediately with existing customers.
CD rates, on the other hand, are locked in for months or even years. Due to this, lower CD rates will only be felt for those opening new accounts — not those who already have CDs in place.
“High-yield savings accounts tend to be more responsive to changes in the Fed’s rates because they are more closely tied to the short-term interest rates that the Fed influences,” says Leslie Tayne, a financial attorney in New York. “CDs, particularly those with longer terms, might not immediately reflect rate cuts.”
One locks in your rate longer
With rates poised to potentially fall on both CDs and savings accounts, understanding how the two differ will be critical if you’re opening a new account.
On CDs, you’re guaranteed a fixed interest rate for the entire account term. It may be for one month or three months, or it could be for up to 10 years. For this reason, they may be better options now, as most experts see rate cuts on the horizon.
“CD rates are likely to continue to fall this year,” Tumin says. “So buying a CD as early as you can will keep you earning a relatively high rate well after the series of Fed rate cuts take place.”
Savings accounts, on the other hand, have rates that shift often based on market conditions. This means you’ll feel the brunt of rate cuts more quickly.
The perk, however, is that you retain access to your money no matter what. Unlike CDs, there are no penalties for withdrawing funds at any point.
“It’s important to choose a CD that fits within your savings timeline and doesn’t lock up your money for too long, otherwise you’ll have to pay an early withdrawal penalty to get your money out sooner,” Tayne says. “One strategy that can mitigate this risk is CD laddering, or spreading out your savings across multiple CDs with varying terms.”
The bottom line
Rate cuts may coming at some point, but with rates as high as they are now, they should remain beneficial for any consumer looking to grow their wealth. Just keep in mind: The longer you wait, the more likely rates will fall, so if you’re eyeing a CD or savings account, opening one now may be the best way to maximize your interest earned. You should also shop around for your account, as fees and rates vary from one bank to the next. In many cases, online banks offer the highest APYs, as they have lower overhead costs.
At least 11 employees were taken to hospitals and residents were urged to shelter in place on Tuesday after an explosion at a Louisville, Kentucky, business.
The Louisville Metro Emergency Services reported on social media a “hazardous materials incident” at 1901 Payne St., in Louisville. The address belongs to a facility operated by Givaudan Sense Colour, a manufacturer of food colorings for soft drinks and other products, according to officials and online records.
Louisville Mayor Craig Greenberg said emergency teams responded to the blast around 3 p.m. News outlets reported that neighbors heard what sounded like an explosion coming from the business. Overhead news video footage showed an industrial building with a large hole in its roof.
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“The cause at this point of the explosion is unknown,” Greenberg said in a news conference. No one died in the explosion, he added.
Greenberg said officials spoke to employees inside the plant. “They have initially conveyed that everything was normal activity when the explosion occurred,” he said.
The Louisville Fire Department said in a post on the social platform X that multiple agencies were responding to a “large-scale incident.”
The Louisville Metro Emergency Services first urged people within a mile of the business to shelter in place, but that order was lifted in the afternoon. An evacuation order for the two surrounding blocks around the site of the explosion was still in place Tuesday afternoon.
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A rare square 37-carat emerald owned by the Aga Khan fetched nearly $9 million at auction in Geneva on Tuesday, making it the world’s most expensive green stone.
Sold by Christie’s, the Cartier diamond and emerald brooch, which can also be worn as a pendant, dethrones a piece of jewelry made by the fashion house Bulgari, which Richard Burton gave as a wedding gift to fellow actor Elizabeth Taylor, as the most precious emerald.
In 1960, Prince Sadruddin Aga Khan commissioned Cartier to set the emerald in a brooch with 20 marquise-cut diamonds for British socialite Nina Dyer, to whom he was briefly married.
Dyer then auctioned off the emerald to raise money for animals in 1969.
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By chance that was Christie’s very first such sale in Switzerland on the shores of Lake Geneva, with the emerald finding its way back to the 110th edition this year.
It was bought by jeweler Van Cleef & Arpels before passing a few years later into the hands of Harry Winston, nicknamed the “King of Diamonds.”
“Emeralds are hot right now, and this one ticks all the boxes,” said Christie’s EMEA Head of Jewellery Max Fawcett. “…We might see an emerald of this quality come up for sale once every five or six years.”
Also set with diamonds, the previous record-holder fetched $6.5 million at an auction of part of Hollywood legend Elizabeth Taylor’s renowned jewelry collection in New York.
