According to recent announcements from the Federal Reserve, it looks like the rate cuts will begin soon. At the end of July, Fed Chairman Jerome Powell announced that the Fed would likely cut rates as early as September and that a 50 basis point (0.50%) cut was “not up for debate.” As recently as August 23, Fed Chairman Powell said that “the time for rate cuts has come.”
The Fed’s rate cuts have been long-awaited and much discussed – but what does that really mean for your savings account? Let’s take a look at the Fed’s rate cuts starting in September 2024 and what that means for you.
How much will the Fed cut interest rates in September 2024?
Based on the general economic data of the last few months and the Fed’s public statements, In September 2024, we will likely see a rate cut of 25 basis points (0.25%). Fed Chairman Jerome Powell said in July that a 50 basis point rate cut in September was unlikely.
Why the Fed will (probably) only cut interest rates by 25 basis points
Normally, the Fed tries not to cut (or raise) interest rates too much or too quickly. As part of its task of managing American monetary policy, the Fed tries to balance several different objectives.
Our pick of the best high-yield savings accounts of 2024
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Capital One 360 Performance Savings 
APY 4.25%
Price info
For the most current rates, visit Capital One’s website. The advertised annual percentage rate (APY) is variable and is effective April 11, 2024. Rates are subject to change at any time before or after account opening.
Member of the FDIC. |
APY 4.25%
Price info
For the most current rates, visit Capital One’s website. The advertised annual percentage rate (APY) is variable and is effective April 11, 2024. Rates are subject to change at any time before or after account opening. |
Min. to earn $0 |
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American Express® High-Interest Savings 
APY 4.25%
Price info
4.25% annual percentage rate from August 26, 2024
Member of the FDIC. |
APY 4.25%
Price info
4.25% annual percentage rate from August 26, 2024 |
Min. to earn 1 dollar |
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UFB Portfolio Savings Account 
APY 5.15%
Price info
To ensure you continue to receive the highest interest rate with UFB, you need to keep an eye on their interest rates. Occasionally, the bank opens new accounts with higher interest rates. Existing accounts will need to contact the bank to request to be transferred to one of these new accounts.
Member of the FDIC. |
APY 5.15%
Price info
To ensure you continue to receive the highest interest rate with UFB, you need to keep an eye on their interest rates. Occasionally, the bank opens new accounts with higher interest rates. Existing accounts will need to contact the bank to request to be transferred to one of these new accounts. |
Min. to earn $0 |
Stable prices
Inflation has already slowed significantly over the course of 2024. If consumer price increases remain low, the Fed may decide that the inflation-fighting exercise is over and begin cutting interest rates more aggressively after September 2024.
Promoting maximum employment
The Fed is not only trying to fight inflation; it is also trying to keep interest rates low enough to keep people in work so the economy doesn’t suffer. If interest rates are too high, companies will stop investing and hiring. That could put millions of Americans out of work.
Promote moderate long-term interest rates
The Fed doesn’t want America’s national debt to become too expensive; higher interest rates also cause the U.S. government’s borrowing costs to rise. By managing America’s money wisely and effectively, the Fed is (hopefully) showing the global bond market that the U.S. government is a stable, reliable borrower – kind of like maintaining good credit, but for an entire country.
The Fed must be cautious when cutting interest rates. The Fed’s rate moves must not be interpreted as an overreaction or panic. For example, if the Fed cuts interest rates by 50 basis points (or more) in September 2024, this could signal to equity and bond markets that the U.S. economy is weaker than expected. This could lead to financial panic and sell-offs in the markets.
Impact of a 25 basis point interest rate cut on savings accounts
Bank savings account APYs are not fixed. They rise and fall depending on the bank’s decisions and can fluctuate along with Fed rate cuts (or hikes). So if the Fed cuts rates by 25 basis points in September 2024, the APYs of the best savings accounts will likely drop by about 25 basis points.
For example, instead of 5.31% APY that you can get with the best bank savings account (as of August 24, 2024), a 25 basis point rate cut would reduce that yield to 5.06% APY in September 2024. Think of it this way: After a 25 basis point cut everyone If you save $1,000, you will earn $2.50 less per year.
What a 25 basis point rate cut means for the best CDs
Some of the best CDs (as of August 24, 2024) pay 5.00% APY for a one-year term. If you want the highest return on your savings, at the moment, before interest rate cuts might be the best time to secure a one-year CD.
Unlike savings accounts, interest rates on CDs are fixed. If you can earn 5.00% APR for one year, you will receive that 5% return for the full 12 months of your CD’s life – even if the Fed cuts interest rates during that time.
But even the best CDs have one major disadvantage: You have to lock up your money. You can’t withdraw your funds from a CD until the term is up, or you’ll likely have to pay an early withdrawal penalty.
Unless you have a lot of cash and are not in danger of spending your emergency fund, Don’t open a CD because of a Fed rate cut. Don’t keep emergency funds in a CD. The best savings accounts and money market accounts – even after potential interest rate cuts – are the best places to store cash that you might need next month, next week, tomorrow or today.
Conclusion
The Fed is likely to cut interest rates by 25 basis points in September 2024. But that doesn’t mean you should rush to open a savings account and lock in a higher APR. The best savings accounts are still a good deal even after a small rate cut—and probably the best place to keep your money.
