The Fed is expected to cut interest rates—how to lock in higher returns on savings now

The cost of borrowing is likely getting cheaper — and that's bad news for savers.

The Federal Reserve is widely expected to cut its benchmark interest rate by another 25 basis points on Wednesday, with markets pricing in one more cut by early 2026, according to the CME FedWatch Tool, which tracks market expectations for Fed moves.

While that will lower borrowing costs for credit cards and loans, it also means yields on savings accounts, certificates of deposit and Treasurys are likely headed lower, too.

The Fed's benchmark — known as the federal funds rate — influences how much interest you can earn on these accounts. Those yields generally move with the federal funds rate and are hovering around its current range of 4.25% to 4.5%.

"If the Fed cuts rates, high-yield savings accounts will adjust almost immediately, so the best way to lock in current yields is with fixed-rate CDs or individual Treasurys," says Alex Caswell, a certified financial planner at Wealth Script Advisors.

Since CD and Treasury rates don't fall overnight, savers still have a short window to take advantage of higher yields. If you're setting aside money you'll need in the next few years, here's how these short-term savings options compare.

A CD is a low-risk way to earn a fixed return on money you don't need to spend soon, in exchange for locking it up for a set period, usually anywhere from a few months to five years.

CD rates generally move with short-term Treasury yields, which are influenced by expectations for the federal funds rate.

The benefit of CDs is that you can lock in a fixed interest rate. The trade-off is access. You generally have to wait until the end of the term to withdraw your money, and taking it out early can mean paying a penalty that wipes out much of the interest you've earned.

Because investors expect long-term yields to fall as the Fed keeps easing, shorter-term CDs are currently paying some of the best rates — around 4.2% for six- to 12-month terms, while longer three- to five-year CDs are in a range of about 3.7% to 3.9%.

New CD offerings usually start to decline within a few weeks after a Fed rate cut.

Treasurys are bonds issued by the federal government that pay a fixed rate of interest over a set term. They're considered one of the safest investments available because they're backed by the U.S. government, which is seen as having a very low chance of defaulting on its debt.

Unlike CDs, they can be sold before maturity without a withdrawal penalty — though you might get less than you paid if market rates rise. Plus, the interest they pay is exempt from state and local taxes.

While the Treasury issues bonds with terms as long as 30 years, most savers focus on short-term Treasury bills, which mature in four weeks to one year, or Treasury notes, which run from two to five years. Shorter-term Treasurys currently yield just under 4%, slightly higher than the mid-3% range for two- to seven-year notes.

Treasury yields move closely with market expectations for the federal funds rate, often adjusting before and after the Fed changes its policy rate. Once the Fed acts, short-term yields typically adjust almost immediately — often within a day — while longer-term yields move more gradually.

You can buy Treasurys directly through TreasuryDirect.gov or most brokerage accounts.

Rates on high-yield savings accounts are variable, meaning they can change at any time — and will likely fall soon after the Fed's next cut. Some banks try to stand out with cash bonuses or limited-time offers for new customers, but these deals usually require a minimum balance of several thousand dollars to qualify.

That said, a cash bonus can still be worthwhile since it can help offset the lower interest you'll likely earn once rates start to fall, says Caswell.

"A high-yield savings account is certainly better than nothing," says Caswell. "Even if the adjustment down happens very quickly, it will still pay more than a regular bank account."

Right now, online banks are paying around 4% to 4.5% annual interest, compared with an average of 0.63% for regular savings accounts, according to Bankrate. These accounts are best for keeping money accessible for emergencies or short-term goals, since funds can be withdrawn at any time without penalty, per Fidelity.

And while HYSAs don't let you lock in a rate, that's not always a drawback. The key is matching your savings to your timeline, not just the yield. "When you need the money is far more important than the rate you get," says Jeremy Keil, a certified financial planner at Keil Financial Partners. "Lock in based on when you need the money, not based on a rate."

Editor's note: This story has been updated to clarify that the U.S. government is seen as having a very low chance of defaulting on its debt.

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