By Ian Salisbury
Savings account yields are again under threat. Fortunately, long-term CD rates have been holding steady -- giving investors a convenient way to make up for any lost income.
On Wednesday, policymakers at the Federal Reserve cut the benchmark federal-funds rate by a quarter-point, the third such cut since September. The rate now stands at 3.5% to 3.75%. While the Fed suggested it may pause rate cuts from here, market watchers expect at least two more cuts in 2026, according to the CME Fed Watch tool.
Lower rates could put pressure on payouts for high-yield savings accounts. The market top savings accounts still pay annual percentage yields, or APYs, close to 4% -- but since they are based on benchmark short-term rates, those aren't likely to last if rates keep coming down.
Investors who don't need access to their cash right away may want to consider alternatives that will let them lock in today's rates for years to come. One obvious answer is certificates of deposit, which promise a fixed interest rate for a set term, such as one, three, or five years.
Until recently, investors have had to pay a significant penalty to enjoy the predictability of a long-term CD, accepting lower rates than top savings accounts. The good news: As savings-account rates have come down since the Fed started cutting interest rates in September 2024, long-term CD rates have more or less held steady, largely eliminating the difference in payouts.
Take a look at the rates currently available with Goldman Sachs' popular online bank Marcus. Marcus' website advertises an online savings account with a rate of 3.65%. That rate looks pretty good, considering it's within the range of the federal-funds rate -- and just a hair below the 3.7% to 3.9% offered on potentially less convenient money-market funds by leading players such as Vanguard and Charles Schwab.
The problem is rates on both savings accounts and money-market funds are floating. A year ago, rates on the market's top savings accounts topped 5%. Those rates could fall further if the economy weakens and forces the Fed to cut again.
Fortunately, these days investors can do just as well -- or better -- in a CD that guarantees their interest rate for months or years to come. Marcus' 1-year CD pays 4%, and its 5-year CD pays 3.9%.
CD Valet, a website that aggregates rates, highlights CDs that offer still better yields. A 5-year CD from United Fidelity Bank pays 4.2%, while one from First National Bank and Trust of Bottineau offers 4.14%, it found.
While these institutions don't have the name recognition of Goldman Sachs, products from small banks and credit unions should be safe as long as they are backed by the Federal Deposit Insurance Corp. or the National Credit Union Administration.
Long-term CDs have been offering comparatively better rates across the board. One recent report from CD Valet found that in the past six months, the average rates paid by 5-year CDs fell by just 0.06 percentage points, compared to 0.28 percentage points for 1-year products.
The dynamic has been shaped by the so-called yield curve, the difference between short- and long-term bond rates. While the yield curve spent much of the past few years inverted -- meaning short-term bonds offered higher yields than long-term bonds -- the situation has gradually been reversing itself, thanks to the Fed's rate cuts and investors' steady confidence in long-term growth.
While the mechanics may be complicated, the upshot for savers is clear -- anyone worried about declining saving account rates now has an escape hatch.
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 11, 2025 14:15 ET (19:15 GMT)
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