6 Months After the First Fed Cut in Years, Financial Planners Have New Savings Advice

• Six months ago, the Federal Reserve cut interest rates for the first time since early 2020.
• It may be beneficial to increase your emergency savings due to the economic environment.
• Bonds and CDs can also help you lock in high rates before they drop, but do your research.

On September 18, 2024, the Federal Reserve made its first cut to the federal funds rate since early 2020. It made two other, smaller cuts that same year, in November and December, but has thus far held rates steady in 2025.

Inflation slowed more than expected in February, which could set the Federal Reserve up to cut rates again by mid-2025.

At the same time, the stock market has faced unexpected volatility due to uncertainty around President Donald Trump’s tariff plans. The S&P 500 entered a correction on March 13 due to this uncertainty.

Ahead of the next Fed meeting, which takes place on March 18 to 19, Adrienne Davis, CFP® professional, CPA, and financial planner with Zenith Wealth Partners, and Kenneth Chavis IV, CFP® professional, senior wealth advisor and shareholder at Versant Capital Management, share advice on how to save in light of lower rates and economic instability.

Bank account interest rates have dropped since September

The Federal Reserve, which is the central banking system of the U.S., meets several times throughout the year. At these meetings, the Fed decides whether to raise, lower, or keep steady the federal funds rate.

Both bank account rates and loan rates are affected by the federal funds rate; if the Fed raises the federal funds rate, then CD rates, savings account rates, and personal loan rates will also go up; if the Fed lowers the federal funds rate, these rates will go down as well.

In total, the Federal Reserve lowered the federal funds rate by 100 basis points, or 1%, in 2024.

Before the Fed started lowering interest rates, you could find 5% interest savings accounts from online banks pretty easily; now, you’re more likely to find high-yield savings accounts offering 4% interest.

“For cash and cash-like savings, so high-yield savings accounts, money market accounts, even CDs, they are yielding less, or compensating a consumer less to be in those vehicles,” says Chavis IV.

Advice on how to save in the current economic environment

Despite offering lower rates, bank accounts like savings accounts, money market accounts, and CDs can still be a good call for specific financial goals right now.

“We’ve always encouraged individuals to save their money. However, since September 2024, especially now in the current economic environment, we are emphasizing savings and for our clients to have higher cash on hand,” says Davis.

She says she’s encouraging clients to keep emergency funds with around six months to one year of expenses in case of layoffs, especially since many of her clients are federal workers.

Hundreds of thousands of federal workers have faced layoffs due to the Department of Government Efficiency’s budget cuts, although multiple judges have ruled to temporarily reinstate many federal workers.

And if you want to prepare for potential rate drops from the Federal Reserve, certificates of deposit can still be a good choice.

“If there are additional rate drops from the Fed, what you can do ahead of time to mitigate that potential of losing the rates they have is to lock in a CD of a term that makes sense for that consumer,” says Chavis IV.

CDs offer a fixed interest rate for their term length; if you were to open an 18-month CD, for example, you would earn the interest rate you opened the account with for 18 months, even if interest rates as a whole drop. This makes them a good choice when you think rates are likely to drop in the near future.

Just keep in mind that you won’t be able to withdraw the money you put into the CD until the end of the term length, either. If you do, you’ll have to pay hefty early withdrawal penalties.

Investment options that can help you lock in a good interest rate

If you want to lock in a good interest rate but are looking for higher rates than federally insured bank accounts can offer you, researching how to buy bonds can be a good choice. When you buy a bond, you’re buying debt from a company that promises to pay back the debt with interest over several years.

Davis says that she recommends her clients invest in mid-duration bonds and treasury notes to keep earning high rates long past potential Fed rate drops.

“That’s another opportunity for clients to be able to still take advantage of the higher rates while we have them, just in case the rates do decrease in the near future,” says Davis.

With these bonds, you’ll be locking in a high rate for several years; while it’s easy to find CDs with term lengths up to 5 years, the best CD rates can be found in short-term CDs right now.

While treasury bonds are offered by the federal government and are generally safe to invest in, other types of bonds are more risky than federally-insured CDs. Davis says to make sure you understand a bond’s credit rating before you buy it.

“If you put your money into a bond that is a junk-rated bond, the probability of you getting that money out could be lower than if it was, for example, the U.S. Treasury,” says Davis.

Chavis IV says that bonds may make sense, depending on your financial goals. But he also says that if you’re thinking of buying bonds, it would be good to talk with a professional first to understand the risks.