The Fed could cut rates as early as September, and savings rates may drop.
The Federal Reserve is expected to hold rates steady at its July 30 meeting. That might not seem like a big deal, but it’s a good sign for your savings account.
“While rates should remain competitive through August, I’d expect more banks to begin lowering them as we get closer to fall,” said Anthony Saccaro, president of Providence Financial & Insurance Services.
That’s because banks’ rates generally move in the same direction as the Fed, and some experts predict that the Fed will cut rates at its Sept. 17 meeting. And that means the sweet 3.6% annual percentage yield — or higher — you’ve been earning on your emergency fund or sinking fund could drop. And it could mean even lower APYs by the end of the year.
There’s a lot of economic uncertainty that could influence the Fed’s decision, which may leave you to wonder what you can expect for your wallet. What we know for now is that there’s still time to maximize earnings on your savings. And with a predicted rate cut on the horizon, it’s a good time to prepare for a change in your savings account. Here’s what experts recommend.
When will high-yield savings rates fall?
Saccaro said banks won’t likely make any big changes now because they expect the Fed to hold rates steady. But that could change if banks get the sense that there will be a rate cut ahead of a Fed meeting — as is expected in September. If that prediction holds, you could see rates start to fall — even before the Fed announces its decision.
“Once the market fully prices in a September rate cut, you’ll likely see APYs start dropping ahead of time,” he said.
How far could savings rates fall?
Don’t expect your rate to drop to 0% APY overnight. Saccaro says you can expect quarter- to half-percent changes over a few months. While that may not seem like a drastic change for your savings account, it could be the start of a trend if the Fed lowers rates again later this year or next.
If your high-yield savings account is for short-term or emergency savings, the rate drop doesn’t mean you should stop contributing to the account — it just means you won’t earn as much in interest. Even if rates drop, an HYSA is still a safe place to stash money you might need quickly.
What to do with your savings before the Fed cuts rates
If you choose to keep your money in a HYSA for short-term savings or easy access, like an emergency fund, it’s a good idea to pay attention to rate fluctuations and signs that banks are about to lower rates.
One potential sign is a change in the Fed’s language after its meeting this month — especially if there are direct mentions of rate cuts or inflation improvements. But the best way to stay informed is to check your rate monthly and compare it to what other banks are offering. “Rate tracking tools or email alerts can help you stay one step ahead of any sudden drops,” Saccaro added.
You also could try chasing after the highest yield, but remember the purpose of your account. If it’s for an emergency fund, keeping the funds easily accessible is more important than tying them up trying to earn an extra fraction of a percent.