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Nobody can accurately predict the future of interest rates over time — not even the people at the Federal Reserve who control benchmark interest rates. And while savings account interest rates aren’t directly dependent on the Fed’s actions, they generally move in the same direction over time.

After all, a couple years ago when the federal funds rate was at virtually zero, it was difficult to even find an online high-yield savings account with an APY greater than 1.00%. Now, with the benchmark federal funds rate set at a target range of 5.25%-5.50%, high-yield savings interest rates in the 4.00%-5.00% range are quite common.

Again, there’s no way to know exactly what will happen. But we can use the latest projections to get an idea of the likely path interest rates will take.

The latest interest rate expectations

First, let’s look at the expectations of the policymakers themselves. Four times a year, the voting members of the Fed’s policy-making arm issue their latest economic projections, including how they expect interest rates to trend.

According to the latest Summary of Economic Projections (June 2024), the members have a median expectation of just one rate cut for the latter half of 2024 and another four quarter-percent rate cuts in 2025.

Here’s what this means. Currently, the benchmark federal funds rate is set at a target range of 5.25%-5.50%. The policymakers at the Fed foresee a target range of 5.00%-5.25% at the beginning of 2025 and a range of 4.00%-4.25% at the end of the year.

We can also use the CME FedWatch tool, which essentially tells us how many rate cuts are being priced into the financial markets. According to this tool, the median expectation is for two rate cuts by the end of 2024, and another four by the September 2025 Fed meeting, the last projection currently available on the tool.

Federal Reserve Projections CME FedWatch Tool Expected Rate Cuts in 2024 1 2 Expected Federal Funds Rate at Start of 2025 5.00%-5.25% 4.75%-5.00% Expected Rate Cuts in 2025 4 4 (by September) Expected Federal Funds Rate at End of 2025 4.00%-4.25% 3.75%-4.00%
Data source: Federal Reserve and CME FedWatch.

What does this mean for savings account interest rates?

These are just projections, so there’s no guarantee that the actual federal funds rate at the end of 2025 will be anywhere close to the levels indicated above. After all, neither source was projecting rapid interest rate hikes to combat inflation at the start of 2022, but that’s exactly what we got.

A lot can happen between now and the end of 2025, which is about 18 months away. Ongoing inflation data, unemployment rates, and the results of November’s election are just a few key factors to keep in mind.

However, the key takeaway is that these two (and virtually all other) sources are projecting that the direction of interest rates will be lower between now and 2025. And if this is indeed the case, we can expect savings account APYs to gradually move lower as well. Interest rates paid on money market accounts and CDs would likely gravitate lower also.

There’s no direct link between Fed rate moves and the interest rates each bank chooses to pay on its savings accounts. But if we get five or six rate cuts by the end of next year, it would be reasonable to expect high-yield savings accounts to pay about 1 percentage point less than they do now, or even a little less than that.

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