(NewsNation) — High savings rates have been a bright spot in the recent interest rate environment but with the Federal Reserve expected to cut rates further, savers are likely to see their returns dip.

Last month, the Fed slashed its benchmark interest rate for the first time in over four years and additional rate cuts are expected.

Further cuts could mean lower rates on mortgages, car loans and credit cards, but also lower returns for savers who have been able to get 4% to 5% on their cash in recent years.

But even if yields on certificates of deposit (CDs) and high-yield savings accounts (HYSAs) drop, they’ll still be attractive saving options for many.

“It may not be as much as you were getting pre-rate cut, but it’s still a lot more than you would have if you just left (your money) in something that’s not going to yield as much interest,” said Elizabeth Ayoola, a personal finance expert at NerdWallet.

According to the Federal Deposit Insurance Corp. (FDIC), the national average annual percentage yield (APY) on savings accounts was 0.46% as of 09/16/2024. By comparison, the best high-yield savings accounts have APYs that are about ten times higher.

Here’s what to know about falling interest rates and your savings.

Are high-yield savings accounts still a good idea?

High-yield savings accounts (HYSAs) are like traditional savings accounts, except they pay a higher interest rate which means your money grows faster. That will still be true even if the Fed cuts rates further.

“I don’t think high-yield savings accounts ever become ‘unattractive,'” Ayoola said. “They are evergreen in the sense that they usually offer higher interest rates than traditional savings accounts do.”

As it stands now, several banks are offering HYSAs with APYs between 4% and 5%. Over a year that can mean much better returns than a traditional savings account:

• $10,000 in a traditional savings account at 0.46% APY
  • Interest earned: $46
• $10,000 in a HYSA at 5.0% APY
  • Interest earned: $500

Unlike investments in stocks or bonds, HYSAs are essentially risk-free. Just make sure you’re using an FDIC-insured bank, which protects your money up to $250,000.

The other benefit of a HYSA is liquidity. You can pull out or transfer money without penalty, which makes it a popular place for savers to keep their emergency fund.

The main caveat is that HYSA interest rates can change at any time, so your return could be lower tomorrow than it is today.

Another thing to keep in mind: HYSAs typically offer better rates than brick-and-mortar bank accounts but if you want to build wealth, investing in the stock market provides higher average returns.

“It’s not recommended that you put tons of money in a high-yield savings account. Usually, it’s used for things like an emergency fund or a short-term goal,” Ayoola said.

Don’t forget, the interest you earn from your HYSA will get taxed so prepare to fork over some of those returns to Uncle Sam.

Are certificates of deposit (CDs) a better option?

Unlike HYSAs, which have interest rates that fluctuate, certificates of deposit (CDs) allow savers to lock in a fixed rate for a set period. The downside is that your money is tied up for the duration of the CD.

With interest rates likely to fall in the coming months, CDs are one way to guarantee a return at today’s rates.

As of late September, the median APY on a 6-month CD was 4.55%, down from 5.00% in January, according to NerdWallet. The rate on a 1-year CD was slightly better, 4.60%.

The math works out like this:

• A $10,000 deposit on a 6-month CD at 4.55%: You are guaranteed a return of roughly $225 after six months.
• A $10,000 deposit on a 1-year CD at 4.60%: You are guaranteed a return of $460 after one year.

Whether CDs are better than a HYSA will depend on your financial goals. CDs offer less liquidity and generally have penalties for early withdrawals, meaning it’s harder to access your funds in a pinch.

Then again, if you know you won’t need the money for several months, CDs offer a stable return while HYSA yields could drop.

“If — and when — rates do drop as fed cuts continue, you’ll still have the same rate locked in,” Ayoola said. “At the moment, short-term CDs are still relatively attractive.”

What about the stock market?

High-yield savings accounts and CDs are low-risk options compared to stocks, exchange-traded funds (ETFs) and cryptocurrency but they potentially come with less upside.

The S&P 500 is up 34% over the past year and nearly 23% year to date. Historically, the average annual return on the stock market is around 10% per year, significantly higher than the typical HYSA yield.

The bottom line is that HYSAs are savings accounts, not investments. They are a stable option for those hoping to earn interest on cash that might otherwise be sitting dormant in a traditional bank account but they aren’t intended to hyperdrive your retirement savings.

As far as HYSAs versus CDs, Ayoola said savers may benefit from both.

“Consumers could put money needed for a medium-term goal in a CD and then they could put money for an emergency fund in a high-yield savings account,” she said. “It doesn’t have to be either or.”