Savings and CD Rates Won't Go Much Higher, Experts Say. Here's What That Means for Your Money (2024)

One of the rare perks of inflation is that it presents a great opportunity for savers. As the Federal Reserve raises interest rates to combat inflation, banks also raise rates on their savings accounts and certificates of deposit. That means your money can grow faster.

The top savings accounts currently earn up to 5.55% annual percentage yield, or APY, and top CDs offer up to 5.35% APY. The Fed’s latest rate pause means high APYs will stick around for a bit longer, but experts say we could see rate cuts as soon as next month. So, if you want to maximize your earning potential, now’s the time to open one of these accounts.

Here’s what you need to know about how the Fed’s latest decision affects savings rates and what that means for your money.

How the Fed’s decisions impact savings and CD rates

The federal funds rate determines how much it costs banks to borrow and lend money to each other. When the Fed raises this rate to fight inflation, banks tend to raise rates on consumer products -- including savings accounts and CDs -- to boost their cash flow and remain competitive. When the Fed cuts this rate, banks usually follow suit.

From March 2022 to July 2023, the Fed raised the federal funds rate 11 times in an effort to tamp down record inflation, and deposit account rates skyrocketed. As inflation began to show signs of cooling, the Fed held rates steady at its next meeting -- and every meeting since then -- causing deposit account rates to plateau at the end of 2023.

Savings account rates have leveled out in recent months, remaining largely the same, but CD rates have gradually fallen. Why? Since CD rates are fixed when you open the account, banks may be hesitant to let you lock in a high APY if rate cuts are just around the corner.

Inflation is cooling, but not as fast as the Fed would like. The annual inflation rate was 3.4% in April, down from 3.5% in March, but it has a ways to go before it hits the 2% Fed’s target. Until it cools further, the Fed is likely to keep rates elevated.

Where are CD and savings rates heading next?

At the beginning of this year, experts predicted three rate cuts in mid-to-late 2024. Now, many think it will be closer to two cuts. These cuts could start as early as next month, although most predict we won’t see them till the end of the year.

What this means for your savings

Why should you care what the Fed does with interest rates? Because it affects how fast your money can grow.

Savings accounts and CDs earn compound interest. That means you earn interest on both your initial deposit and the interest you’ve earned so far. This can help grow your money exponentially, especially when rates are high -- for example, one CNET writer discovered she could double her savings in one year thanks to the power of compounding.

But timing makes a difference in how much you can earn. Because CD rates are fixed, opening a CD while APYs are high can maximize your earning potential and protect your earnings from anticipated rate cuts. So, if you have money saved that you won’t need for a few years, investing in a CD right now can help you earn a competitive, predictable return.

Savings account rates are variable, so they can change at any time. However, the sooner you open a high-yield savings account, the longer you can enjoy elevated rates and the greater your earning potential will be, even when rates eventually fall.

Regardless of the Fed’s next move, putting your money in a CD or high-yield savings account can always be a smart way to earn interest and reach your savings goals faster, whether you’re building your emergency fund or working toward a big purchase.