Interest rates have fallen from their 2023 peaks, but future cuts depend on inflation and employment data

The Federal Reserve raised its benchmark rate to 5.25–5.50 percent in 2023 to fight inflation. As of late 2024, that rate sits lower, and savings accounts, CDs, and money market accounts have followed. However, the pace of future cuts is not set in stone. The Fed meets eight times a year to decide whether to cut, hold steady, or raise rates again, and each decision depends on inflation data, employment numbers, and economic conditions at that moment.

What matters to you as a saver is that lower Fed rates eventually mean lower rates on new CDs and savings accounts. Banks pay less to borrow money, so they offer less to depositors. If you locked in a high-rate CD when rates were at their peak, that rate is may provide for your term—but when it matures, the new rate will likely be lower. If you have been waiting to open a savings account, falling rates mean the window to capture higher yields is narrowing.

Key Takeaways

  • The Federal Reserve's benchmark rate has fallen from its 2023 high of 5.25–5.50 percent, and savings account and CD rates have declined in response.
  • Future rate cuts depend on inflation and employment data, which the Fed reviews at eight scheduled meetings per year.
  • When rates fall, banks offer lower yields on new CDs and savings accounts, so locking in a rate now protects you from future declines.
  • High-yield savings accounts and short-term CDs are most sensitive to rate changes, while longer-term CDs lock in your current rate for years.

How the Federal Reserve's decisions affect your savings

The Federal Reserve does not set savings account or CD rates directly. Instead, it sets the federal funds rate—the interest rate banks charge each other for overnight loans. When that rate falls, banks have less incentive to offer high yields to savers, because they can borrow cheaply from each other. Within weeks or months, you will see new CD rates and savings account rates drop across the industry.

The lag between a Fed rate cut and a change in your account rate is usually short for savings accounts (often immediate or within days) but can vary for CDs, depending on the bank's strategy. Some banks cut CD rates quickly; others hold them steady for a few weeks to attract new deposits before lowering them.

Why CD rates are falling faster than savings account rates

CDs are term products—you lock in a rate for a fixed period, say six months or five years. When rates are falling, banks know that customers who open a CD today will be stuck at that rate even if rates drop further. To manage their costs, banks lower CD rates quickly to discourage long-term locks at higher yields. Savings accounts, by contrast, have no fixed term, so banks can adjust the rate whenever they want. Some banks keep savings rates higher temporarily to compete for deposits, then lower them later.

If you are considering a CD, the timing matters. A one-year CD opened today will pay a fixed rate for twelve months, regardless of what happens to rates in the meantime. If rates fall, you benefit from locking in now. If rates rise, you will wish you had waited—but you cannot change the rate mid-term.

What falling rates mean for different savings vehicles

A high-yield savings account moves with the market almost immediately. When the Fed cuts rates, these accounts drop within days. They offer flexibility—you can withdraw money anytime—but you sacrifice the certainty of a locked-in rate. Right now, as rates fall, the advantage of a high-yield savings account is shrinking.

A CD locks in your current rate for a set term. If you open a two-year CD at 4.5 percent, you earn 4.5 percent for two years, even if rates fall to 2 percent next month. This protection is valuable when rates are falling. The trade-off is that your money is tied up; early withdrawal usually costs you interest.

A money market account sits between the two. It offers check-writing or debit card access (like a savings account) but rates that are closer to CD rates. However, the rate is variable, so it will fall as the Fed cuts.

A Treasury bill or Treasury note is a government bond you can buy directly or through a brokerage. A one-year Treasury bill currently pays less than a one-year CD at most banks, but it is backed by the U.S. government and can be sold before maturity if you need cash. Rates on new Treasuries fall when the Fed cuts, but existing ones keep their original rate.

When to lock in a rate before it falls further

If you have cash sitting in a low-rate savings account or money market fund, moving it to a CD now captures a higher rate than you will likely see in three to six months. The longer the CD term, the more you are betting that rates will fall—and the more you benefit from locking in now. A five-year CD at 4.0 percent protects you if rates drop to 2.5 percent; a three-month CD at 4.0 percent protects you only briefly.

However, locking in also means giving up the chance to move your money if rates rise unexpectedly. If the Fed pauses cuts or raises rates again, a long-term CD will look less attractive. Most savers balance this by using a CD ladder—opening multiple CDs with different maturity dates (three months, six months, one year, two years) so that some money matures every few months and can be reinvested at whatever the rate is then.

How to compare rates across banks right now

Rates vary widely by bank and term. A one-year CD at a large national bank might pay 3.5 percent, while an online bank offers 4.2 percent for the same term. The difference adds up: on a $10,000 CD, that 0.7 percent gap means $70 more in interest over the year.

Check rates at online banks, credit unions, and traditional banks. Online banks typically offer higher yields because they have lower overhead costs. Credit unions sometimes offer competitive rates to members. Use a rate-comparison site to see current offers, but verify the rate on the bank's own website before opening an account, because rates change daily.

Also check the FDIC insurance limit. Most banks insure up to $250,000 per depositor per account type. If you have more than that, you can open accounts at multiple banks or use a service like InvestorSafe or CDARS to spread your money across insured accounts automatically.

What to do if you are locked into an old high-rate CD

If you opened a CD when rates were at their peak (late 2023 or early 2024), you are in a good position. Your rate is locked in and will not change until the CD matures. When it does mature, you will have a choice: open a new CD at the lower rate then in effect, move the money to a savings account, or explore other options like Treasury bills or bonds.

Some banks offer a "bump-up" or "raise-your-rate" CD that lets you increase the rate once if rates rise during your term. These are less common now that rates are falling, but if you have one, check your account documents to see if you can use the feature.

Frequently Asked Questions

Will interest rates keep falling?

The Federal Reserve's next moves depend on inflation and employment data, which change monthly. Rates may fall further, stay flat, or even rise if inflation picks up again. No one can predict with certainty. This is why locking in a rate with a CD protects you from downside risk—if rates fall, you still earn the higher rate you locked in.

Should I open a CD now or wait?

If rates are falling, opening a CD now locks in a higher rate than you will likely see later. If you think rates might rise, waiting could pay off. Most savers use a CD ladder to split the difference: open some CDs now and some in a few months so you are not betting everything on one timing call.

What is the best CD term right now?

That depends on when you will need the money and how much rates might fall. Shorter terms (three to six months) let you reinvest frequently if rates rise. Longer terms (two to five years) lock in protection if rates fall. Compare the rate difference between terms—if a five-year CD pays only 0.3 percent more than a one-year, the extra safety may not be worth tying up your money.

Can I withdraw money from a CD early?

Yes, but most banks charge an early withdrawal penalty—usually three to six months of interest. Check your CD's terms before opening it. Some banks offer "no-penalty" CDs with slightly lower rates but let you withdraw without penalty after a short waiting period (often seven days).

Are Treasury bills safer than CDs?

Both are very safe. CDs are insured by the FDIC up to $250,000; Treasury bills are backed by the U.S. government. Treasury bills currently pay less than CDs at most banks, but they can be sold before maturity if you need cash. CDs cannot be cashed in early without a penalty. Choose based on your need for flexibility and the rate difference.