If interest rates continue to be higher-for-longer, cash-like accounts are the ones that could really benefit from it!
The Federal Reserve’s recent forecast predicts a slower pace of interest rate cuts than previously anticipated, leaving many – especially those with debt – feeling uneasy. However, experts highlight that savers with money in cash-like accounts, such as high-yield accounts, may find opportunities in this higher-for-longer scenario. Interest rates on this type of accounts are closely tied to the Federal Reserve’s benchmark rate. When the Fed raises rates, returns on these accounts usually increase too.
“If you’ve got your money in the right place, 2025 is going to be a good year for savers – much like 2024 was”, said Greg McBride, chief financial analyst at Bankrate.
After raising interest rates in 2022 and 2023 to fight inflation, the Fed brought borrowing costs to their highest levels in over two decades. While the Fed began easing rates in late 2024, it recently revised its 2025 forecast, reducing the expected number of rate cuts from four to just two.
“The big change since September is explained by notable upward revisions to the Fed’s own inflation projections for 2025”, McBride explained.
The Impact On Consumers
Higher interest rates have mixed implications for consumers. On the downside, borrowing becomes more expensive. However, there’s a silver lining: “higher interest rates can help individuals of all ages and stages build savings and prepare for any emergencies or opportunities that may arise – that’s the good news”, said Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth.
High-yield savings accounts remain attractive, with many offering interest rates between 4% and 5%, McBride noted. However, not every bank offers competitive rates. Online banks often lead the pack, while traditional brick-and-mortar institutions may offer much lower returns – sometimes as little as 0.1%, he added.
When deciding between high-yield savings accounts and certificates of deposit (CDs), Cheng advised weighing liquidity versus stability. High-yield savings accounts offer easy access to funds but come with variable interest rates. CDs, on the other hand, lock in fixed rates but limit your ability to access the money.
Before opening a high-yield savings account, it’s essential to verify a few key details:
- Minimum Deposits: some institutions require a minimum deposit to earn the advertised yield.
- FDIC Insurance: make sure the institution is covered by the Federal Deposit Insurance Corporation (FDIC), which protects deposits up to $250,000 in case of bank failure.