The Fed’s Massive Rate Cut Has a Huge Silver Lining for Savers Who Missed Out on 5% CDs

There’s been talk of the Federal Reserve cutting interest rates since the start of 2024. On Sept. 18, the central bank finally took action by lowering its benchmark interest rate by half a percentage point. A rate cut of that size is considered a fairly aggressive one, since the Fed could’ve lowered rates by a quarter of a percentage point but opted for a half a point instead.

You may have noticed that 5% CD rates began disappearing before the Fed’s Sept. 18 announcement. And if you look around now, you may find that your best CD offer is in the mid- or upper-4% range.

This isn’t to say that you absolutely won’t still find a 5% CD. But your choices may be limited. And any remaining 5% CD rate you find might come with requirements you can’t meet, like a minimum deposit you aren’t able to come up with.

But while you may be kicking yourself for having missed out on 5% CDs, the news isn’t all bad. Here are a couple of reasons why you shouldn’t be too bummed about lower CD rates.

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Capital One 360 Performance Savings APY 4.25% Rate info Circle with letter I in it. See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Member FDIC.	APY 4.25% Rate info Circle with letter I in it. See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0
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American Express® High Yield Savings APY 4.25% Rate info Circle with letter I in it. 4.25% annual percentage yield as of September 20, 2024 Member FDIC.	APY 4.25% Rate info Circle with letter I in it. 4.25% annual percentage yield as of September 20, 2024	Min. to earn $0

1. CD rates are still strong

You may be upset to not be able to lock in a CD at 5%. But chances are, if you look around, you’ll be able to find a 4.50% CD instead. That’s not such a huge difference.

If you’re opening a 12-month CD with $3,000, with a 5.00% APY, you’re talking about earning $150 in interest. At 4.50%, you’re looking at earning $135.

This isn’t to say that you shouldn’t try to lock in a 5% CD if you can still find one. But if you end up with a slightly lower APY, don’t assume that you’re suddenly looking at no money. In this example, there’s a $15 difference. That falls under the category of slightly annoying, but not life-changing.

2. Borrowing rates will start falling

The Fed’s recent interest rate cut is likely to be the first of many. But while rate cuts are going to lead to lower savings account and CD rates, they’re also going to result in lower borrowing rates. So what you lose in one regard, you might gain in another.

Say you’ve been holding off on signing or refinancing a mortgage because rates were stuck around 7%. Currently, the average 30-year mortgage rate is 6.09%, according to Freddie Mac. And there’s a good chance you’ll be able to lock in a mortgage rate at under 6% before the end of the year, assuming you have good credit.

So while you may have to accept less interest from a CD in the next year, you might pay less interest on your mortgage for the next 30 years following a refinance. Similarly, if you sign an auto loan, you might pay less interest — and less money per month on a whole — during that time.

It’s understandable to be disappointed about 5% CD rates being a thing of the past. But recognize that the news isn’t all bad. And if you’re still interested in opening a CD, you may find that you’re still able to snag a pretty great deal.

However, you also don’t want to wait too long to open your next CD. Rates are only likely to keep falling. So if you have the money now, act quickly.