While inflation has been cooling over the last few months, it has remained higher than the Federal Reserve's 2% target rate for the last few years. In turn, the Fed has held interest rates steady since raising the benchmark interest rate to a range between 5.25% and 5.50% in July 2023. 

While the elevated rates have weighed down the housing market, they've been a boon for savers who want to open certificates of deposit (CD) accounts with higher annual percentage yield (APY) rates. The Fed doesn't directly set CD rates, but yields tend to rise and fall in line with the committee's decisions.

With inflation inching downward, most analysts expect that the Fed will begin cutting interest rates as soon as September. But how could falling interest rates affect yields — and will CDs be worth it after the Fed lowers rates? Here's what you need to know.

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Will a CD still be worth it after the Fed cuts rates? Experts weigh in

The consensus among experts is that a potential rate cut soon is expected to be minimal to start. Bear in mind that the yields often adjust ahead of Federal Reserve rate decisions, so current CD rates may already reflect an anticipated rate cut. Consequently, a CD could still be an excellent option for guaranteed returns even if rates fall.

"CDs can be attractive now since savers can lock in an interest rate for the full term of the CD," says Howard Pressman, a financial planner and partner at EBW Financial Planning. "Even if rates come down on accounts such as high-yield savings accounts, your CD will remain at the rate you enjoyed when you initially purchased it."

Deposit accounts like CDs and high-yield savings accounts typically provide substantially higher rates of return than you'll find in a traditional savings account. CDs are still a good option because you can still find top CDs offering yields in the 4% and 5% range. That's significantly higher than savings account rates, which currently have an average APY of 0.45%. 

Should rates drop while your money is in a CD account, you'll continue to benefit from your fixed yield. This certainty is why many savers prefer CDs over other deposit accounts — and what makes them a good option even if rates fall. 

"CDs will always be attractive to the risk-avoidance nature of savers. I had an aunt many years ago complain that she couldn't get 14% on her CD any longer. Of course, the prime interest rate at the time was over 20%," says Rob Burnette, chief executive officer and fiduciary financial advisor at Outlook Financial Center. 

Thankfully, interest rates are no longer that high, but a CD offering 4% or 5% is strong enough to outpace July's annual inflation rate of 2.9%, preserving your purchasing power and earning steady returns.

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Other factors to consider

While CDs offer higher yields than other savings options, the flip side is that you must keep your funds in the account until it matures. If you need to pull out cash for an emergency, you could incur an early withdrawal penalty equal to several months of interest, depending on the terms of your CD. 

As such, it's essential to choose a CD term you're confident you can commit your money to it without needing access to it. 

"CDs are great if you can commit your money for the life of the CD. High-yield savings accounts are great for money if you want more frequent and unrestricted access," Pressman says.

For this reason, a mix of both accounts may suit some borrowers. For example, you might want to put funds in a CD to earn a fixed, higher return for long-term goals and place other funds in a high-yield savings account for easy access to cash for short-term needs.

Either option is better than keeping your money in a standard savings account, and while the average savings rate on regular accounts is now a paltry 0.45%, it could drop more when the Fed cuts interest rates. So, you could be leaving money on the table by not switching to a higher-earning CD or high-yield savings account.

The bottom line

Keep in mind that while the signs point to a rate cut next month, no one knows for certain what decisions the Fed will make regarding interest rates, especially over time. Still, the Fed's initial rate cut is expected to be modest, so even if CD rates fall, they're unlikely to fall dramatically. As a result, CDs and high-yield savings accounts should remain a good savings option, at least over the short term. If you believe the Fed will cut rates more than once in the coming months, though, it may make sense to lock in a CD at today's rates now.