In January, experts said 2024 would be a “very good year for savers.”
And it still is, despite the Federal Reserve’s recent 50 basis point rate cut, which will push record returns on cash lower.
“Those rates aren’t going to go from awesome to awful overnight,” said Matt Schulz, chief credit analyst at LendingTree. “There’s no need to panic if you haven’t moved your money into a high-yield savings account yet or you haven’t locked in a CD rate.”
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While savers may have missed the interest rate peak, there is still value in setting money aside and finding the best place to put your cash savings now.
“The biggest mistake that people can make … is the failure to save,” said Mark Hamrick, senior economic analyst at Bankrate.
“The urgency of saving is not made any less in an environment where rates are coming down,” he added. “It’s just that the math changes.”
Some savings accounts still offer 5% yields
The Fed’s rate cut hasn’t yet shown up in the form of lower returns at many banks and accounts.
Returns on savings accounts — as measured by average annual percentage yields, or APYs — are almost seven times higher than they were before the Federal Reserve started hiking interest rates, according to Bankrate.
“A good number of financial institutions are going to need to keep their yields at levels that are sufficient to attract deposits,” Hamrick said.
The best rates on savings accounts can be found online. As of Sept. 18, high-yield online banks are offering a 5.1% average yield, according to Bankrate.
Savers who access those rates are still beating inflation.
Government data shows the 12-month inflation rate has cooled to 2.5% as of August, according to the consumer price index.
Yet, savers who do not shop around run the risk of falling behind price growth, with the average yield on traditional savings accounts at just 0.5%, according to Hamrick.
“It’s still going to be as important as ever for people to prioritize their savings, to shop around for the best rates,” Hamrick said.
Now is still a great time to lock in a CD
For savers with cash sums they do not plan to touch for a set period of time, a certificate of deposit can provide a way to lock in high rates.
A six-month or one-year CD may provide a 5% annual percentage yield, while three- and five-year CDs are still providing at least 4% returns, according to Hamrick.
“You really haven’t lost much at all at the moment,” Hamrick said.
Since CDs offer less liquidity than a savings account, it’s important to ensure you have access to cash in case of an emergency. A CD will typically charge early withdrawal penalties if the money is taken out before the set term.
Having cash set aside — whether through a high-yield savings account or a CD — can help provide protection for uncertain times, Hamrick said.