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What Today’s Fed News Tells Us About Savings and CD Rates in 2025
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What Today’s Fed News Tells Us About Savings and CD Rates in 2025

Key takeaways

  • In an almost certain move, the Fed announced today that it would lower the federal funds rate by a quarter of a percentage point.
  • This is the second consecutive rate cut by the central bank, which lowered its key rate by half a point in September. This came after keeping interest rates at a 23-year high for 14 months.
  • Although the highest high yield savings account rate is still close to a 20-year high, today’s decision by the Fed will push most banks to lower their rates.
  • Since CDs offer a guarantee of future rates, the best CD prices have already been declining for a year. Today’s rate cut will fuel this decline.
  • Further Fed cuts are likely in 2024 and 2025, or even 2026. Since this could lead to a long decline in savings and CD rates, it makes sense to capitalize on today’s rates while you can.

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What did the Fed say today?

As was massively expected, the The Federal Reserve The rate-setting committee announced this afternoon that it would reduce the federal funds rate by an additional 0.25 percentage point, bringing the target range between 4.50% and 4.75%. This is the second consecutive meeting in which the central bank has lowered its key rate, with a larger reduction of half a point announced on September 18.

Previously, the Fed implemented a historic rate-raising campaign to combat decades-long high rates. inflation. Consisting of 11 rate increases between March 2022 and July 2023, this increase increased the federal funds rate by a cumulative 5.25 percentage points, bringing it to its highest level since 2001.

Now that inflation has calmed, the Fed has decided to lower the federal funds rate. In its official statement today, the Fed said its 0.25 point taper comes as unemployment and inflation risks are “roughly balanced,” but with an inflation rate that remains slightly above the Fed’s 2% target. As it usually does, the Fed also indicated that the rate-setting committee would make future decisions on a meeting-by-meeting basis.

“In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully evaluate incoming data, the evolving outlook, and the balance of risks,” the Fed said in its statement. employment and bring inflation back to its 2 percent target.

Will there be more Fed cuts in 2024 and 2025?

At its September meeting, the Fed released its quarterly report “dot plot” forecast, so named because it represents each member of the Fed committee as an anonymous point and presents on a graph where each predicts that the federal funds rate will be at the end of this year, next year and in two years No point The plot is released at the November meeting, but you can see the Fed committee members’ forecasts for September 18 below.

During his usual news conference after the announcement, Federal Reserve Chairman Jerome Powell The committee was asked whether the committee was maintaining its September forecast of another rate cut in December and then possibly a full one-point cut in 2025. Powell said he would not be able to speak to members’ current expectations. of the committee since they did not respond. a dot plot planned during this meeting.

“For December, at each meeting – we’re going to look at the incoming data and how that affects the outlook,” Powell said, later adding: “We’re on the path to a more neutral position. This has not changed at all since (September projection). We’ll just have to see where the data takes us. »

We can, however, look to what Wall Street predicts. According to the CME Group FedWatch toolNearly 75% of federal funds futures traders are betting that the Fed will implement another 0.25 point rate cut at its Dec. 18 meeting. And by the end of 2025, more than three-quarters of investors predict a further decline of 0.50 to 1.00 points.

How will this affect CD savings and pricing?

The Federal Reserve itself does not dictate consumer interest rates. But the level it sets for the federal funds rate has a direct impact on the interest that banks and credit unions are willing to pay for savings, money market and certificate of deposit (CD) accounts. When the Fed’s benchmark rate is high, so are the interest rates charged to bank customers. The opposite is true when the federal funds rate is low.

When interest rates are expected to fall, many banks and credit unions lower their CD rates in anticipation, without waiting for the next official decision from the Fed. That’s because CDs not only give you a rate today, but a guaranteed rate in the future – and institutions don’t want to find themselves stuck paying CD rates they’ll regret later. As a result, we saw the best CD prices has been declining for almost a year now, and this trend is expected to continue.

On the other hand, savings account rates behave a little differently. Because banks and credit unions can discount them on a dime, savings accounts are free of the rate commitment that a CD offers. Therefore, high yield savings account rates are less likely to move before changes in the federal funds rate.

Are savings accounts and high-yield CDs still worth it?

While it is true that savings and CD rates will continue to fall following today’s Fed decision – and will likely continue to fall if the central bank implements additional rate cuts – it is also true that it always makes sense to earn a competitive rate, whatever it may be. at present.

So if you have cash savings in a bank account that earns little or nothing, moving them to a high-yielding savings account will start generating monthly interest payments that will essentially amount to free money . And the sooner you can move on to one of best high yield savings accountsthe sooner you put your savings to good use.

If you can also commit to not touching some of your money for months or even years, consider a CD. While savings account rates will fall with the federal funds rate, a CD you open now will have a guaranteed rate that cannot be changed. By browsing our daily ranking of best CD pricesyou can choose from dozens of options that pay 5% or better on terms through 2025, or in the 4% range for CD rate locks that extend through 2026, 2027, or even until 2029.

But don’t delay, because CD APYs available tomorrow could be worse than today, and any CD supply could evaporate overnight. So, as soon as you find a great deal that you like, lock it in so you can take advantage of that rate later.

Daily ranking of the best CDs and savings accounts

How We Find the Best Savings and CD Rates

Every business day, Investopedia tracks rate data from more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines the daily rankings of the highest-paying accounts. To be eligible for our lists, the establishment must be federally insured (FDIC for banks, NCUA for credit unions), and the minimum initial account deposit must not exceed $25,000.

Banks must be available in at least 40 states. And while some credit unions require you to make a donation to a specific charity or association to become a member if you don’t meet other eligibility criteria (for example, you don’t live within a certain region or do not work a certain type of job), we exclude credit unions with a required donation of $40 or more. To learn more about how we choose the best rates, read our full methodology.