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Best Online Savings & Money Market Account Rates 2025

Best Online Savings & Money Market Account Rates

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Federal Reserve Moves Fed Funds Rate Down by 25 Basis Points to a 4.50%-4.75% Range

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The Federal Reserve has ended its November 2024 meeting with a 25 basis points cut.

This cut follows 50 basis point cut in September and the Fed Funds rate now sits 75 basis points below its 5.25 to 5.50% range which marked the high for this cycle.

The pace of Fed cuts is now very much in question following the second election of Donald Trump.  Whereas the Fed was previously focused entirely on incoming inflationary data, it now needs to focus as well on fiscal policy issues - including the possibility that tariffs, deportations and increased deficit spending - may be inflationary.

Even prior to Trump election, all Treasury rates longer than 6 months stood at much higher yields than they had for several months.   It is more clear than before that the Fed's rate cutting efforts to bring rates down to around 2% will play out over quarters or years and not monthly meetings.

Now that the uncertainty of the election is over, we'd expect to see banks become much more competitive with their 1-year CD and 2-year CD offerings, even as the best savings rates may fall.

 

 


Federal Reserve Unveils 50 Basis Point Cut: Fed Funds Target Now at 4.75 to 5.00%

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The Federal Reserve acted as expected to lower the benchmark Fed funds rate for the first time in this cycle. Market observers had fully expected a rate cut going into the September 2024 meeting, but had been divided between a 1/4 point and a 1/2 point hike. The Fed chose to start with a larger move, which Federal Reserve Chairman characterized as a decisive recalibration towards a more neutral stance (as opposed a restrictive stance), lowering the rate by 50 basis points to a target of 4.75 to 5.00%.

While the decision was not unanimous, the Fed's large move indicates that it believes that it has largely restored price stability with inflation measurements indicating that the pandemic price burst has eased and inflation is well on its way to the Fed's 2% target.

The Fed has been somewhat reluctant to provide further guidance on additional rate moves.  Bond markets is clearly pricing in at least one additional 25 basis point cut before the end of 2024 and several additional cuts in the first half of 2025.

Meanwhile consumers can expect to see lower savings rates, CD rates, mortgage rates and home equity rates.


July 2024 Fed Meeting Ends With The Fed Funds Rate Still At 5.25% to 5.50%, But Treasury Yields Move Sharply Lower

The Federal Reserve ended its July meeting by issuing a statement that adjusted its rate stance. Whereas the Fed had previously indicated that it was principally biased towards fighting inflation, its new statement indicates that there has been real progress towards its 2% target and that it is attentive to risks on both sides of the mandate (i.e., inflation and maximum employment).

The shift to a neutral stance was well projected by Chairman Jerome Powell and the others on the Federal Reserve. It was also well anticipated. Only about 3% of economists polled believed that the Fed would cut interest rates at this meeting, and between 97% and 100% believe that the first cut would come at the September meeting.

Even though the Federal Reserve projected well and did not cut rates now, the stock market has sold off dramatically and both yields have come down sharply.   Markets are acting oddly, as if the Fed sees that a recession is on the near horizon and that it will need to lower rates sharply and quickly. Treasury yields between 3 and 5 years have already fallen below 4% within 24 hours.

This panicked reaction would be odd, except for the fact that rates have hovered near 23 year highs for the better part of the last 16 months and the default mechanism for fighting recessions during that period has been to take short-term interest rates close to zero. We also have a Presidential candidate who seems to alternate between arguing that Powell has held rates too high (while insisting that if he lowers rates before November, he would be committing election interference).

But, we have been here before.  In January, yields came in sharply when economists believed that the Fed was about to cut, only to reverse and move to higher levels for most of the year.  My hunch therefore is that the Fed is going to move rates down very slowly and deliberately. It will only act as quickly as the yield curve is now indicating if we fall into a sharp recession.

Whether the Fed moves quickly or slowly, we have moved to a place where bank CDs are much more attractive than US Treasuries, even for those in the highest tax jurisdictions who can benefit from the tax-free attributes of the latter.

Now is a good time to compare CD rates here.

And, it is also a good time to be sure that your money is in the highest yielding online savings accounts.