As the Federal Reserve initiates rate cuts, certificate of deposit (CD) and high-yield savings account (HYSA) rates are beginning to fall, but savvy investors still have a window to secure competitive annual percentage yields (APYs) that outperform inflation and traditional bank offerings, guaranteeing returns well into 2026 or even 2027.
The landscape for savers is shifting. After an aggressive rate-hike campaign by the Federal Reserve in 2022 and 2023, which saw interest rates soar to historic highs, we’re now firmly in a period of anticipated rate cuts. While this inevitably means a decline in the attractive annual percentage yields (APYs) offered on certificates of deposit (CDs) and high-yield savings accounts (HYSAs), it’s crucial for investors to understand that the window of opportunity for securing excellent returns is far from closed. In fact, for many, now is the ideal time to act.
The Fed’s Influence: Why Rates Are Declining
The Federal Reserve’s primary tool for managing inflation and economic stability is the federal funds rate. When inflation surged, the Fed responded by hiking rates 11 times between March 2022 and June 2023, pushing the federal funds rate to a range of 5.25% to 5.5%. This policy had a direct, positive impact on deposit accounts, driving CD and savings APYs to levels not seen in over a decade.
However, with inflation largely moderating, the central bank has begun to shift its stance. After holding rates steady for several meetings, the Fed has already initiated rate cuts in late 2024, and more cuts are widely expected through 2025 and into 2026. According to the CME Group’s FedWatch Tool, there’s a significant probability of further cuts in the coming months, with odds for a cut at the September meeting jumping to about 85% for at least a quarter percentage point.
Banks and credit unions, anticipating these moves, have already started lowering their deposit rates. As Ally CFO Russ Hutchinson noted during a recent earnings call, the bank had already cut CD rates twice in January and expected more cuts in 2024, as reported by Money. This proactive approach by financial institutions means that the best rates tend to disappear even before the Fed officially announces its next move.
CDs: Your Shield Against Falling Rates
In this declining rate environment, certificates of deposit offer a significant advantage over traditional savings accounts: a guaranteed APY. When you open a CD, the interest rate you secure is locked in for the entire term, regardless of how much the Federal Reserve lowers its benchmark rates. This makes CDs an invaluable tool for securing today’s still-attractive yields for the long term.
Currently, many top nationwide CDs are still offering competitive rates. For instance, some 1-year CDs are available at 4.55% APY, while longer terms like a 21-month CD can lock in 4.50% until March 2027. Even with some recent drops, these rates significantly outpace the national average for a 12-month CD, which, according to FDIC data, is around 1.68%.
For example, a $50,000 investment in a 4.00% APY 12-month CD could yield $2,000 in interest, far exceeding the returns from an average CD. This guaranteed return can provide peace of mind, knowing your money is working efficiently even as the broader market shifts.
Top CD Offers Available Now
While specific rates can change quickly, a snapshot of recent offerings illustrates the opportunities:
- 6-Month CDs: Many institutions like Rising Bank and Southeast Bank have recently offered 4.50% – 4.51% APY, locking in returns until late December 2025.
- 1-Year CDs: T Bank has offered a leading 4.55% APY for 12 months, guaranteeing returns until June 2026.
- Longer Terms (e.g., 21-24 months): Pen Air Credit Union and USAlliance Financial have provided rates around 4.35% – 4.50% APY, extending guarantees well into 2027.
These rates, though slightly lower than their peak, are still exceptionally strong compared to historical averages over the past decade.
High-Yield Savings Accounts: Flexibility with Strong Returns
For those who prefer liquidity, high-yield savings accounts (HYSAs) remain an excellent option. While their rates are variable and subject to change with Fed policy, many HYSAs still offer APYs between 3.50% and 4.50%. Some money market accounts, which offer similar features to savings accounts but with potential check-writing privileges, have even maintained APYs above 5%, such as Patriot Bank’s 5.05% APY online money market account, as highlighted by Bankrate chief financial analyst Greg McBride and Curinos director Adam Stockton. This demonstrates that certain banks are keen to hold onto attractive rates to attract growth.
The key tradeoff with HYSAs is the lack of a fixed rate. Banks can lower your APY at any time without warning. However, for funds that need to be readily accessible, such as an emergency fund, the flexibility of an HYSA is paramount. It allows you to earn substantial interest while keeping your money liquid for unexpected expenses.
Strategic Moves for the Savvy Investor
Even as rates decline, the current environment offers unique advantages:
- Outpacing Inflation: Current top yields across CDs and HYSAs are still comfortably outpacing inflation, which stands at approximately 2.7%. This means your money is not just growing, but its purchasing power is increasing, a rare phenomenon in recent financial history, as noted by Greg McBride.
- Historically High Rates: Despite recent cuts, current APYs are still among the highest they’ve been in more than a decade. The aggressive 525 basis-point rise in rates from 2022-2023 created a sustained period of high returns that far exceeded previous cycles, such as the 2.25% peak at Ally Bank and Marcus by Goldman Sachs prior to 2022.
- CD Laddering: For those who want the security of fixed CD rates but also desire some liquidity, a CD ladder is an effective strategy. As wealth advisor Lawrence Sprung explained to Money, this involves spreading your savings across CDs with staggered maturity dates (e.g., 6 months, 1 year, 2 years). As each shorter-term CD matures, you can reinvest it into a longer term, capturing current rates while ensuring periodic access to a portion of your funds without early withdrawal penalties.
- Don’t Delay: The advice from financial experts is clear: if you find a CD rate and term that aligns with your financial goals, it’s wise to lock it in quickly. While a July Fed rate cut might be less likely, top offers can disappear from the market overnight.
The Federal Reserve’s actions to maintain economic stability by adjusting the federal funds rate directly influence the interest rates banks and credit unions offer on deposit accounts. As rates are expected to decrease, the sooner you act, the better your chances of securing a higher yield for a longer period. The current landscape still provides robust opportunities to grow your savings, outperform inflation, and maintain financial security.
