Savings accounts are a fantastic financial tool. They serve as a safe place to keep your money, while paying you interest you can pocket.
But you should know that September 2024 is a good month to assess your savings and see if you can afford to move some cash out of there and into a different account. Doing so could end up being a great thing for your finances.
Savings account rates are likely to dip
You’ve no doubt noticed that your savings account is paying a much higher interest rate now than it was a few years ago. There’s a reason for that.
Savings account and CD rates are elevated thanks to a series of interest rate hikes from the Federal Reserve that took place in 2022 and 2023. But when the Fed meets next week, it’s expected to move forward with its first interest rate cut in years.
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Capital One 360 Performance Savings 
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Once that happens, savings accounts and CDs are going to start paying less. This doesn’t mean we’re going to see a huge difference in rates overnight. But rates are expected to gradually fall. And that’s why now’s a good time to move some money out of a savings account and into a CD.
If you lock in a CD at a great rate before the Fed’s first cut, that rate will be guaranteed for the duration of your CD, whether it’s six months, 12 months, or longer. If you keep all of your money in your savings account, you won’t get a guaranteed interest rate on any of it. And once rates fall, you may end up disappointed in the amount of interest you’re earning.
How much money is safe to move out of a savings account?
The advice to move money out of a savings account and into a CD applies to cash you don’t need for your emergency fund. Your emergency fund should always sit in a savings account, and not a CD, because you need to have access to that cash at all times. There can be costly penalties for withdrawing money from a CD before its maturity date, which is why a CD is not an appropriate place for emergency savings.
For most people, an adequate emergency fund is one with enough money to cover three to six months of essential bills. Let’s say your essentials come to $2,500 a month and you have $14,000 in your savings account. You may decide that you’re comfortable with a four-month emergency fund ($10,000).
In that case, it’s not a bad idea to take the remaining $4,000 and put it into a CD as soon as possible. That way, you’re guaranteeing yourself a higher rate on that portion of your money.
There’s a good chance that savings account interest rates will remain strong, albeit lower than they are today, for a decent stretch of time beyond September. Remember, the Fed is expected to cut rates gradually just as it increased rates gradually. But if you want the guarantee of a higher rate, then transfer some cash into a CD and lock one in before rates fall.
