Prediction: Here’s Where HYSA Rates Are Headed Over the Next Year

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

[[{“value”:”Image source: The Motley Fool
For those who like to keep money in savings accounts, the post-pandemic era has been pretty great. As the Federal Reserve repeatedly raised interest rates to combat inflation — which was at a multi-decade high — the average interest rates banks paid customers also climbed quickly.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes. In fact, many of the best high-yield savings accounts offered rates above 4.00% in 2023 and for most of 2024.Today, it’s still possible to get really good rates with many accounts. However, there are fewer options out there with those high rates now, and rates are likely to trend downward for HYSAs.Here’s what you need to know about where rates are headed and whyNo one can predict with certainty exactly where interest rates are going to trend. After all, most experts thought rate cuts would start early in 2024, but the first Fed rate cut did not happen until the September meeting of the central bank, when FOMC members reduced rates by 50 basis points (0.50%). Still, it’s possible to look at trends and guess where HYSA rates are going.For example, the Fed dropped rates again in November, reducing the benchmark rate a quarter of a percentage point (0.25%) to the 4.50% to 4.75% range. The Fed is also predicting more rate cuts through 2025, and although it is possible that the election of President Donald Trump could change things, Fed Chairman Jerome Powell indicated in November that the results of the presidential race would have “no effects on our decisions” in the near term.If the Fed does continue reducing rates as planned, then it is very likely that the rates on high-yield savings accounts will drop in the coming year, and will likely fall below 4.00%.While the Fed’s benchmark rate doesn’t directly control savings account rates, banks aren’t going to continue to be able to afford to pay yields of upward of 4.00% if the short-term rate at which banks can borrow overnight from each other drops below 3.00% by 2026. That’s the trajectory it’s likely to be on, absent any major policy or economic changes in the coming year.What can you do about dropping interest rates?Naturally, it’s pretty upsetting to find out that your savings account may pay you far less than you’re used to. But that’s not necessarily a bad thing.Rates were driven up because of high inflation, which made everything cost more. If a lower yield on savings accounts is the price to pay for costs not surging year over year to unsustainable levels, most people would take that deal.You also have other options for your money. If you want a safe investment you can lock in at today’s rates, you can explore CDs. Certificates of deposit guarantee your rate for the duration of the term — which could be as long as five years.Does a locked-in APY sound like a winner to you? Click here to explore some of the top CD rates available now.If you have a longer investing timeline, you can also invest in a brokerage account. The best accounts charge no fees and make investing really simple. You’re likely to earn way better returns by investing than you can by sticking your money in savings — especially if you have a long investing timeline and choose a trusted investment like an S&P 500 index fund. The S&P 500 has consistently earned 10% average annual returns over the long term.If you have money you won’t need for at least five years, put it in a brokerage account. A good stock market performance over the coming years could mean you make far more money than your savings could ever offer.It’s a good idea to keep some money in savings — like your emergency fund and money for short-term goals you can’t afford to tie up in a CD or the stock market. But you should keep this to the minimum you need (experts recommend enough to cover three to six months of essential bills). Remember that this money isn’t there as an investment with the goal of earning great rates, but is instead there to help you pay for an upcoming purchase or avoid debt in case of surprise expenses.With that mindset, the drop in savings account rates isn’t such a disappointment — it’s just a good reminder to make sure your money is where it’s supposed to be given its intended purpose so it can work as hard as possible for you.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.”}]] [[{“value”:”

For those who like to keep money in savings accounts, the post-pandemic era has been pretty great. As the Federal Reserve repeatedly raised interest rates to combat inflation — which was at a multi-decade high — the average interest rates banks paid customers also climbed quickly.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

In fact, many of the best high-yield savings accounts offered rates above 4.00% in 2023 and for most of 2024.

Today, it’s still possible to get really good rates with many accounts. However, there are fewer options out there with those high rates now, and rates are likely to trend downward for HYSAs.

Here’s what you need to know about where rates are headed and why

No one can predict with certainty exactly where interest rates are going to trend. After all, most experts thought rate cuts would start early in 2024, but the first Fed rate cut did not happen until the September meeting of the central bank, when FOMC members reduced rates by 50 basis points (0.50%). Still, it’s possible to look at trends and guess where HYSA rates are going.

For example, the Fed dropped rates again in November, reducing the benchmark rate a quarter of a percentage point (0.25%) to the 4.50% to 4.75% range. The Fed is also predicting more rate cuts through 2025, and although it is possible that the election of President Donald Trump could change things, Fed Chairman Jerome Powell indicated in November that the results of the presidential race would have “no effects on our decisions” in the near term.

If the Fed does continue reducing rates as planned, then it is very likely that the rates on high-yield savings accounts will drop in the coming year, and will likely fall below 4.00%.

While the Fed’s benchmark rate doesn’t directly control savings account rates, banks aren’t going to continue to be able to afford to pay yields of upward of 4.00% if the short-term rate at which banks can borrow overnight from each other drops below 3.00% by 2026. That’s the trajectory it’s likely to be on, absent any major policy or economic changes in the coming year.

What can you do about dropping interest rates?

Naturally, it’s pretty upsetting to find out that your savings account may pay you far less than you’re used to. But that’s not necessarily a bad thing.

Rates were driven up because of high inflation, which made everything cost more. If a lower yield on savings accounts is the price to pay for costs not surging year over year to unsustainable levels, most people would take that deal.

You also have other options for your money. If you want a safe investment you can lock in at today’s rates, you can explore CDs. Certificates of deposit guarantee your rate for the duration of the term — which could be as long as five years.

Does a locked-in APY sound like a winner to you? Click here to explore some of the top CD rates available now.

If you have a longer investing timeline, you can also invest in a brokerage account. The best accounts charge no fees and make investing really simple. You’re likely to earn way better returns by investing than you can by sticking your money in savings — especially if you have a long investing timeline and choose a trusted investment like an S&P 500 index fund. The S&P 500 has consistently earned 10% average annual returns over the long term.

If you have money you won’t need for at least five years, put it in a brokerage account. A good stock market performance over the coming years could mean you make far more money than your savings could ever offer.

It’s a good idea to keep some money in savings — like your emergency fund and money for short-term goals you can’t afford to tie up in a CD or the stock market. But you should keep this to the minimum you need (experts recommend enough to cover three to six months of essential bills). Remember that this money isn’t there as an investment with the goal of earning great rates, but is instead there to help you pay for an upcoming purchase or avoid debt in case of surprise expenses.

With that mindset, the drop in savings account rates isn’t such a disappointment — it’s just a good reminder to make sure your money is where it’s supposed to be given its intended purpose so it can work as hard as possible for you.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More