CDs vs. high-yield savings accounts: Which will be better after a September Fed rate cut?

An interest rate cut this September may impact what savers can earn with CDs and high-yield savings accounts. porcorex/Getty Images

The first interest rate cut of 2025 now appears just days away, if projections currently hold. 

There's around a 90% chance the Federal Reserve will issue a 25 basis point cut when the central bank's next meeting wraps on September 17 and a 10% chance the Fed moves to make a larger, half a percentage point reduction, according to the CME Group's FedWatch tool. 

While that will help borrowers, it will contribute to the loss of interest earnings savers have already started to feel over the last year. Rate cuts in the final months of 2024, for example, consequently lowered returns on certificate of deposit (CD) and high-yield savings accounts. So an additional cut this month will only cause rates there to decline further.

That said, the ramifications of a September Fed rate cut and, potentially, others to follow this year, won't be uniformly felt by CDs and high-yield savings accounts. One of these accounts will be better positioned to absorb the impact. So, which will be better, post-September 17? That's what we'll explain below.

Start by seeing how high a CD rate you can still lock in here now.

CDs vs. high-yield savings accounts: Which will be better after a September Fed rate cut?

Whether a rate cut is issued now or in the Fed's October and December meetings, the result will be the same. CD accounts are better positioned to absorb these changes thanks to the fixed interest rate they come with while high-yield savings accounts, which have variable rates, will be more volatile.

In other words, if you lock in a CD interest rate now, before the September rate cut is issued, it will remain the same even after the cut. And, depending on the length of the CD, it could stay the same as multiple cuts are issued. High-yield savings account rates, however, while approximately the same as CDs now, will follow the Fed's actions more closely. That will be detrimental for savers with these accounts as their interest-earning capacity will decline accordingly.

At the same time, the fixed CD rates will require a bit of sacrificing. Savers will need to keep their money in the account untouched for the full CD term or risk having to pay an early withdrawal penalty. Depending on the lender, that could mean having to pay most or all of the interest earned on the account to that point. High-yield savings accounts, meanwhile, don't have the same restrictions and savers will be able to make deposits and withdrawals as they would with a traditional account.

Which will be "better" after a Fed rate cut this month, then, will largely depend on your point of view. If you want to maintain flexibility in a changing rate landscape, then a high-yield savings account is your better choice. But if you want to still earn a high, predictable and guaranteed high rate on your money, then a CD will be. That said, CD rates on new accounts won't be immune from a cooling rate climate, either, so if you want to secure as high a CD rate as possible, it makes sense to take action promptly.

Get started with a high-rate CD while you still can.

The bottom line

CDs and high-yield savings accounts will respond differently to presumed interest rate cuts. Existing CD accounts will maintain their fixed rate while high-yield savings accounts won't. Either way, however, new account holders will be offered lower rates on both than they would have if they acted earlier this year. So the timing here is important to get right. It wasn't that long ago that returns on both account types were barely existent. It makes sense, then, to capitalize on this relatively high-rate climate while you still can.