Will a high-yield savings account still be worth it after the Fed cuts rates? What experts say

The federal funds rate remains at a 23-year high of between 5.25% and 5.50%, where it's stayed for the past year. While the high-rate environment has had a big impact on borrowers recently, the elevated federal funds rate has been instrumental in the Federal Reserve's efforts to curb inflation, which is showing signs of significant cooling. 

Savers have also benefitted from this prolonged period of high rates. For example, savers who have kept money in a high-interest savings account recently have earned substantial yields, with today's best high-yield savings account rates topping the 5% mark. While the Fed doesn't set annual percentage yields (APYs) on deposit accounts, the Fed rate decisions influence yields, which are typically higher when the federal funds rate is high, and vice-versa.

However, economists and rate-watchers now widely expect the Fed to start cutting rates as soon as September. If that happens, could these yields also fall — and will a high-yield savings account still benefit savers after rates have dropped? Let's break it down.

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Will high-yield savings accounts still benefit savers if the Fed cuts rates?

Many experts anticipate that any rate cut will be minimal to start. Banks also tend to anticipate the Fed's future decisions and may have already started adjusting their yields on deposit accounts. As such, today's savings account rates may already reflect an impending cut.

"Even though the interest rate they pay will come down, high-yield savings accounts will likely still pay you more than your local bank," says Howard R. Pressman, a financial planner and partner at EBW Financial Planning. "These will remain a good place to keep money you want to keep safe, such as for your emergency reserve or for large expenses in the next couple of years."

One of the primary reasons a high-yield savings account is a good option is because of its primary purpose — providing a safe place for your savings while earning interest. 

While some may withdraw money from savings accounts if rates drop and move it to riskier investments like stocks and bonds, having a savings account is still necessary, Yuval Bar-Or, professor of finance at the Johns Hopkins Carey Business School, notes. 

"Even with low rates, everyone benefits from keeping some cash in a cash or rainy-day fund to cover large anticipated expenses such as a payment on a car or home purchase or to cover emergencies such as a surprise car repair or roof leak," says Bar-Or. "Rainy-day funds include savings account balances and CDs, along with money market funds and direct investments in Treasury bills."

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What factors should savers consider when exploring high-yield savings accounts?

Of course, you'll want to shop for high-yield savings accounts offering the best APYs. Keep an eye out for account fees and minimum balance requirements that could impact your savings as well.

It's also imperative to choose a high-yield savings account that is FDIC-insured (or NCUA-insured for credit unions) to protect your deposit up to the standard insurance limit, typically $250,000 per depositor, per institution.

Pressman says he prefers high-yield savings accounts from large, reputable banks. 

"There are a lot of entities offering higher rates; however, I believe there is greater risk in these offerings that are not justified by the small increase in rates," Pressman says. 

If you have disposable funds you won't need to access for a while, consider utilizing a certificate of deposit (CD) to lock in today's rates for a specific term. That way, you can enjoy today's yields even if rates drop before your CD matures. However, if something happens and you need to access the cash, withdrawing funds will typically trigger an early withdrawal penalty.

"Now may be a good time to lock in a higher rate as we start to see interest rates decrease," says  Chikako Tyler, executive vice president and chief financial officer at California Bank & Trust. "While you can't withdraw funds from a CD before maturity without penalties, the real benefit is you are guaranteed a fixed rate for the duration of a CD, so you are trading flexibility for certainty on the interest rate."

The bottom line

Opening a high-yield savings account now while rates are still high may be beneficial, especially for short-term savings goals where you need easy access to your money. At the same time, adding a CD to your savings strategy could allow you to lock in a higher rate for long-term goals and earn a guaranteed return even if rates drop further. Consider consulting your financial planner or tax advisor to make sure your decision aligns with your overall financial plan.