Why it's still worth opening a high-yield savings account before interest rates fall, according to a financial planner

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• The Fed is expected to cut rates soon, which means savings account rates will also likely fall.
• It's still worth opening high-yield savings accounts for things like emergency savings.
• High-yield savings accounts will continue to outpace regular savings accounts after rate drops.

When the next Fed meeting takes place in September, it is likely to lower interest rates. When that happens, rates for all banking products, including high-yield savings accounts, are expected to drop, too.

The best high-yield savings accounts might not offer rates over 5% for much longer, but opening one is still worthwhile. We talked to Alvin Carlos, CFP® professional and managing partner at District Capital Management, who explains why high-yield savings are still worth opening in the current rate environment.

High-yield savings accounts offer security, easy access, and great rates all in one

High-yield savings accounts work a lot like regular savings accounts, but they're generally offered by online banks or credit unions. They offer much higher interest rates than standard, brick-and-mortar savings accounts do, even in a declining interest rate environment.

High-yield savings accounts can be a great place for emergency funds because you can earn a great rate on your account while keeping your funds safe and liquid. "I think anyone, really, who is building or has an emergency fund" would want to open a high-yield savings account, says Carlos. "It doesn't matter if your emergency fund is $50,000 or $1,000; it's always good to have a high-yield savings account because you get free money," adds Carlos.

While some savings accounts limit how often you can withdraw money each month, they're still easier to access than other financial planning options, like CDs or brokerage accounts. Savings accounts are safer than brokerage accounts, too. "Pretty much all online banks or banks that give high interest rates will be FDIC-insured," says Carlos.

FDIC insurance means that your money will be safe in your savings account up to $250,000 for individual accounts and $500,000 for joint accounts. If you decide to go with a credit union instead, your account will be NCUA-insured instead, which works the same way. Almost all the financial institutions you encounter will be either FDIC- or NCUA-insured, but make sure to check that they are just in case before you open an account.

Yearly earnings with high-yield savings account rates

Right now, the best high-yield savings accounts are 5% interest saving accounts. Some examples of accounts with the highest national savings account rates currently are the Western Alliance Bank High-Yield Savings Premier (5.31% APY), BrioDirect High-Yield Savings Account (5.30% APY) and Forbright Growth Savings (5.30% APY).

There's a good chance that savings account rates across many financial institutions will change in September. "So most likely, they're going to go down by 0.5%," by the end of the year, says Carlos.

Even though your high-yield savings account interest rate might fall to under 5%, you're still very much outpacing the average savings account interest rate, which the FDIC says is 0.46% APY as of August 2024. And you're still earning a significant amount of money on your funds.

As an example, let's take a look at what a high-yield savings account could earn hypothetically over the course of a year. "So, let's say you have a 5% savings account right now; let's just say it drops to 4%," says Carlos. "Even if you only have $20,000 in your savings account; for 4%, that's $800. You can get a flight to Europe with $800," Carlos adds. 

If you had a savings account with $20,000 that only offered the average interest rate of 0.46% APY, you'd earn less than $100 in a year.

When to not use high-yield savings accounts

While high-yield savings accounts can be a great financial tool, there are some times when you might prefer to use another financial tool.

If you're planning on withdrawing money from an account frequently, a checking account might be a better choice for you. Checking accounts generally offer more tools to get money in and out of your account, while savings accounts frequently limit how many times you can withdraw money each month — and many financial institutions don't make it obvious how many monthly withdrawals you get.

For short-term savings with a clear endpoint, CDs might be your best bet. The best CD rates are similar to high-yield savings account rates, but they're fixed instead of variable, meaning CD interest rates won't change until their term length is up. In exchange, you generally can't withdraw money until the end of the term length, either.