Why Now Is Still a Good Time to Grow Your Money in a Deposit Account – Even as Rates Decline

Interest rates continue to drop. That’s no surprise after the Federal Reserve lowered its benchmark federal funds rate for the third time in a row this year. But despite the Fed lowering rates starting in September by a total of a full percentage point, or 100 basis points to a range of 4.25-4.5 percent, some top-yielding deposit account rates at banks and credit unions – specifically online-only banks – are holding up much better than expected.

For instance, I opened my first CD, an 18-month term, in August, securing a fixed annual percentage yield (APY) set a few weeks before the Fed started cutting rates. But that CD, purchased today, now has an APY of 55 basis points (0.55 percentage-point) lower than what it was four months ago. Yes, I’d rather have the higher APY from August, but it wouldn’t be life-changing if I missed it and opened a CD this month instead. 

Putting $1,000 in an 18-month CD today, for example, would earn around $8.41 less in total interest during the CD’s maturity than when I opened it in late August; that’s a few dollars less today to potentially stay ahead of inflation for 18 months. The steep rise in interest rates, which began in 2022, and made its inevitable pullback this past fall, gave savers a ride like that of a high-speed elevator. “The Fed took the elevator from the ground floor to the 55th floor and they’re now down on the 45th floor, but the view’s not a whole lot different,” says Greg McBride, CFA, Bankrate chief financial analyst.

Despite the recent drop in interest rates, here are six reasons why it’s still a good time for savers to grow their money in a deposit account – even as rates continue to decline. 

1. Top five-year CD yields are higher than expected

Savers considering a five-year CD can open one that offers an APY above 4 percent, a yield higher than what we at Bankrate (and other market prognosticators) expected after three Fed rate cuts. 

“The highest-yielding five-year CDs aren’t running ahead of the Fed’s rate cuts, as the top yields are down minimally this year,” McBride says. “Declines on shorter maturities have been more pronounced.” That means future rate cuts aren’t priced into those top current CD yields. 

Bankrate data shows that only one of its top-yielding five-year CD accounts, Quontic Bank, saw its APY decrease more than 130 basis points from July 29 to Dec. 18 – with two other CD accounts having the same APY during those four months.

If a CD is the right fit for you – that is, you’re comfortable socking away your cash, untouched, during the length of its term – it could still be a great option to help you grow your savings while staying ahead of projected long-term inflation, which is currently at 2.7 percent. While top-yielding CDs generally offered higher APYs last year, they’re still earning higher APYs than what many customers expected in today’s declining rate environment.

2. Savings APYs are also more attractive 

Comparing the top 13 high-yield savings APYs on July 29 with Dec. 19, only three banks have lowered their yields by more than 65 basis points. Granted, savings APYs are generally variable, but as of Dec. 19, they’re higher than expected.

“Looking at the most competitive online savings accounts, the top yields aren’t down as much as you’d think considering how active the Fed has been in recent months,” McBride says. “But it makes sense if the Fed is going to be much slower to lower rates in 2025 than what was originally expected.” 

But this hasn’t been the case for all top savings yields. “Some high-yield accounts have fallen much further, so if your account isn’t among the most competitive, it might be time for a switch,” McBride adds.

3. A 5 percent APY money market account is still out there 

It’s no wonder that a money market account yielding 5 percent APY is regarded as such an appealing account for savers. That could be the reason why some banks are still offering such a high yield, even after the Fed cut rates by a total of 100 basis points. 

Patriot Bank is one such bank, offering 5.05 percent APY on its online money market account, as of Dec. 23. This is why it’s worth considering money market accounts in your search for yield. A money market account is like a savings account, but some have the added ability to offer check-writing privileges. “A lot of consumers seem to be really tuned in to the five percent rate as one that they’re really looking for,” says Adam Stockton, director at Curinos, a data provider. 

Banks looking for growth, in some cases, may be saying they want to hold onto that five percent rate for as long as they can because they think it’s going to stand out in the market, Stockton says. 

But keep in mind that savings yields, including money market accounts, are generally variable, which means a bank can usually change them at any time. 

4. Top yields are still outpacing inflation 

Since March 2023, Bankrate’s top-yielding savings account, has been outpacing inflation. It’ll likely take a combination of more Fed rate decreases and upticks in inflation for this to change.

McBride says looking at the after-inflation rate of return, the positive real return, on federally-insured bank deposits is what makes this a pretty rare environment during the past two years. This applies to both top savings and top CD yields. But CDs typically have fixed APYs, while savings accounts usually have variable APYs that will likely decrease as the Fed lowers rates.

“The window of opportunity is still open to lock in inflation-beating yields on CDs – yields that should beat inflation throughout the term of the CD – including multi-year CDs,” McBride says.  

5. Yields are among the highest they’ve been in more than a decade 

The meteoric 525 basis-point rise in interest rates from 2022 to 2023, has been an unusual phenomenon for CDs and savings accounts. Outside of this current rate cycle, top APYs are the highest they’ve been in more than a decade.  

“We need to view these rates in the context of inflation and the fact the rates themselves are still far higher than anything that we saw for the better part of 15 years,” McBride says.

6. Some online-only bank yields are still way above previous record highs 

Some online-only banks haven’t seen APYs this high before the Fed started raising rates in 2022. 

For instance, prior to 2022, Ally Bank’s highest savings yield was 2.25 percent APY. That was on June 4, 2009. Marcus by Goldman Sachs, recorded its highest APY prior to 2022 at 2.25 percent APY in 2019. 

Why was the record high APY only 2.25 percent during the previous period of rising rates? Because that rate cycle consisted of nine Fed rate increases that were 25 basis points each. In our most recent rate cycle, rates increased a total of 11 times between 2022 and 2023, some by as much as 75 basis points each.

How the Fed impacts rates 

The Fed’s action to maintain economic and financial stability by raising or lowering its target federal funds rate generally affects how banks and credit unions set their interest rates on their deposit accounts. A Fed rate cut, for example, tends to cause the APYs on savings accounts to decrease as savings account rates are typically variable.

The Fed began raising rates in March 2022 to try to tamp down inflation, which hit a high of 9.1 percent a few months later in June. These rate increases directly caused savings yields to rise and, in turn, caused CD APYs to increase. CD APYs generally track Treasurys and may change before the Fed’s rate decision. 

CD APYs usually decrease before the Fed takes action. That’s why it’s worth noting that some top-yielding CDs didn’t seem to have future rate cuts priced into them earlier this month.

On the flip side, the Fed impacts some lending rates as well when it makes a rate change. For instance, credit card annual percentage rates (APRs) may decrease after a Fed rate cut. 

Is now still a good time to open a CD or high-yield savings account?

Top-yielding accounts, specifically high-yield savings accounts and CDs, have seen or likely will see a drop in their APYs in the near future, unless something unexpected happens such as a sudden spike in inflation, which could cause the Fed to change course on lowering rates.

If you’re considering opening a CD at a federally-insured bank or credit union, now might be an opportunity to get a higher yield, especially as rates are expected to decrease in the future. But no one really knows by how much rates will decrease. A CD ladder, which enables you to deposit your savings across various CD terms, could make sense if you think CD yields will decrease.

A person who plans to buy a house in five years, for example, might want to put their savings for a downpayment into a four-year CD so that they have access to their funds in time. That way, they avoid the risk of incurring an early withdrawal penalty if they have to withdraw the funds before it matures. 

As for savings accounts, it’s always a good idea to start, or add to, an emergency savings fund when financial times are good, so that when the inevitable rainy day comes in the form of an unexpected expense, then you’re prepared. Even last week, as rates dropped to 4.25-4.5 percent, you can easily find a high-yield savings account at an online-only bank with both a competitive yield and an account that doesn’t have a monthly service fee. This way you can start saving with a very low amount, if that fits your budget. Something saved is always better than nothing saved. 

Bottom line

The Fed lowered its benchmark federal funds rate by 100 basis points in the past three months to a range of 4.25-4.5 percent. That may seem like a drastic cut to your earning potential on your savings account, but keep in mind that from March 2022 to June 2023, rates rose a total of 525 basis points, to a range of 5.25-5.5 percent. So the recent period of rate cuts isn’t the end of the world to your savings growth potential. 

Slow interest rate decreases and steady or decreasing inflation will help savers maintain their purchasing power, so long as savings APYs are well above the current inflation rate of 2.7 percent. But don’t expect the rate environment to remain this way forever.