Your High-Yield Savings Account Is About to Look Less Appealing

High-yield savings accounts are about to pull less of a punch. Here's a look at what to do with your savings once interest rates drop.

A senior couple sits at a table, working on their finances with a calculator and a computer.
(Image credit: Getty Images)

Those nice, safe returns on cash sure have been sweet, but don’t count on them lasting. After years of near-zero yields, interest rates began a rewarding upward climb in 2022. In early 2024, prime money market funds yielded an average of 5.1%. You could find one-year certificates of deposit at 5.5% and high-yield savings accounts cresting 5%. Those yields handily beat inflation, which rose 3.4% overall in 2023. Little wonder that investors have added more than half a trillion dollars to money market funds in the past 12 months.

But the Federal Reserve’s expected interest rate cuts in 2024 will sap yields on all kinds of savings accounts and safe, short-term investments. Investors are betting that the Fed will cut interest rates faster and deeper than it has publicly telegraphed, perhaps pushing money fund yields below 4% later this year. Most economists expect inflation will fall also, potentially keeping inflation-adjusted returns on cash in the black. Still, the prospect of more-anemic interest rates is sparking many investment professionals to suggest that investors rethink their plump cash positions.

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Kim Clark
Senior Associate Editor, Kiplinger's Personal Finance

Kim Clark is a veteran financial journalist who has worked at Fortune, U.S News & World Report and Money magazines. She was part of a team that won a Gerald Loeb award for coverage of elder finances, and she won the Education Writers Association's top magazine investigative prize for exposing insurance agents who used false claims about college financial aid to sell policies. As a Kiplinger Fellow at Ohio State University, she studied delivery of digital news and information. Most recently, she worked as a deputy director of the Education Writers Association, leading the training of higher education journalists around the country. She is also a prize-winning gardener, and in her spare time, picks up litter.