Think Interest Rates Will Fall? This Could Be a Better Place for Your Money Than a Savings Account

If you have some money in savings, you may be pretty happy with the interest rate you're being paid right now. After all, it is entirely possible to find high-yield savings accounts offering more than 5.00% APY.

This is a stark contrast to a few short years ago, when even high-yield accounts offered rates below 1% at the height of COVID-19. It's even a big change from the pre-pandemic period, when a good account rate typically hovered in the 2.00% range.

But just because you may be impressed with your yields right now doesn't mean this will continue to be the case forever. In fact, many people think interest rates set by the Federal Reserve will fall this year, and that could bring savings account rates tumbling down, too.

If you are one of the many who believe rates will decline in 2024 and beyond, there may be a better place for your funds than a high-yield savings account. Here's why CDs are worth considering right now.

Could a CD guarantee you a better rate of return?

The biggest problem with savings accounts is that they typically come with variable rates. While you may be getting 5.00% APY or more from your bank right now, there's no guarantee the account will keep paying you at this generous rate if market conditions change. In fact, the opposite is true -- if rates start to fall, you'll almost certainly be notified by your bank that savings account yields are falling, too.

If you think rates are going to decline, you may want to consider putting at least some of your savings into a certificate of deposit instead.

CDs share one key feature with savings accounts -- they're safe, because they are typically insured by the FDIC. You don't put your money at risk by buying a CD. Just like with savings, the money isn't going to be lost for any reason outside your control.

CDs are different in two important ways, though:

• They tend to offer you slightly higher rates than even high-yield savings accounts. That's a good thing if you're hoping to earn the most competitive rate.
• The rate is guaranteed for your CD term, so if you open a 5-year CD, your rate won't change over the five years and you can lock in your yields at today's competitive rates. You'll keep your rate even if market conditions change and interest rates on the whole decline substantially.

These benefits of CDs seem very attractive -- especially if you suspect interest rates will go down soon. But these advantages don't necessarily mean everyone should put money into a CD. It has to be right for you.

Is a CD a good place for your money?

One of the most important things you need to know is that CDs don't offer the liquidity or easy access to cash that high-yield savings accounts do. Your CD will be for a set term, like three months, two years, or five years.

Your rate is guaranteed for that whole time, which is a big upside for anyone pessimistic about future rates. In fact, as mentioned above, being able to lock in today's rates can be one of the best reasons to choose a CD.

But in exchange for locking in your competitive rate, you must guarantee the bank you'll leave your money with them until the term is up. So, if you open a 3-year CD, you can't take your money out before the end of three years unless you pay an early withdrawal fee. The same is true with any CD term, unless you open a no-penalty CD.

So, is a CD a good place for your savings if you think rates will fall?

Ultimately, the answer depends on what the money is for. If it's your emergency fund and you might need it at any moment, then the answer is no -- a CD isn't something you should be buying.

But if you need it for something a few months or years down the line and there's no chance you'll require the cash sooner, you should think seriously about investing in a CD right now. This could be a better choice than sticking it in a savings account, where you could soon find yourself earning a far lower return if rates go down across the board.