Interest Rates Are Falling—What This Means for Savers
Savers, be warned: The days of high-yield savings accounts are numbered.
In March 2022, the Federal Reserve embarked upon a campaign of higher interest rates to combat inflation. The central bank hiked rates 11 times, lifting them to a two-decade high of 5.25–5.5 percent.
This allowed savers to park their cash in low-risk investment vehicles—high-yield savings accounts, certificates of deposit (CDs), money-market funds, and Treasury bills—and generate solid returns of 4–5 percent.
These numbers, however, could be changing heading into 2025.
It is also unclear if the coming low-rate climate would force savers to reconsider their love for cash and shift to investment alternatives that might offer better returns.
For now, savings accounts continue to be appealing for households preparing for a rainy day or setting aside cash for a vacation, says Justin Haywood, the president and co-founder of Haywood Wealth Management.
"Savings accounts are still attractive, even after the Federal Reserve's recent rate cuts," Haywood told The Epoch Times. "While the rates may not be as high as they were a couple months ago, they still offer liquidity and safety, making them a good option for short-term savings and emergency funds."
EverBank, My Banking Direct, and Poppy Bank offer 5 percent APYs to clients. Others, such as CIBC U.S., BMO Alto, Barclays, Citibank, and Marcus by Goldman Sachs, provide more than 4 percent APYs.
By comparison, however, the APY for traditional savings accounts presented by large national banks, such as Bank of America, JP Morgan Chase, and Wells Fargo, is still as low as 0.01 percent. The big banks have had little incentive to bolster their rates on savings accounts because they maintain plenty of deposits on their balance sheets.
Taking another look at a portfolio of savings, investments, and disposable cash might be an appropriate step heading into a new interest-rate era.
"Savers should continue to park part of their money in savings accounts or high-yield savings accounts for easy access and safety," Haywood said. "However, for money that doesn't need to be immediately available, investing in CDs or U.S. Treasurys could be more attractive due to their fixed interest rates and low risk."
Treasury yields have unexpectedly risen following the Fed's rate cut. The benchmark 10-year yield has topped 4 percent for the first time since August.
Over the past couple of years, reports have highlighted how much inflation has affected households' saving pursuits, causing many to fall behind on their financial goals.
"The rising cost of living is stretching American budgets," Kelly LaVigne, vice president of consumer insights at Allianz Life, said in a statement. "Just because inflation has slowed doesn't mean prices have gone down."
Fifty-seven percent of Americans working full time or part time or who are temporarily unemployed say they are behind on their retirement savings. Nearly half (48 percent) are pessimistic that they will be able to meet their aims.
"Given the sharp divide among those who express confidence, or lack of it, that they'll be able to retire comfortably, we see a continuing pattern in our country of the 'haves' and the 'have nots,'" said Mark Hamrick, Bankrate's senior economic analyst.
