Federal Reserve could potentially lower interest rates this year. Here's how to maximize your savings currently.
As of late July 2025, here are the current rates and options for various cash savings instruments in the U.S.:
High-Yield Savings Accounts
Offer between roughly 3.5% to 5.0% Annual Percentage Yield (APY). The top rate is about 5.00% APY, offered by Varo Money, while well-known online banks like Marcus by Goldman Sachs offer around 3.65% APY and Axos Bank up to 4.66% APY. The national average savings account rate is much lower at about 0.38%.
Money Market Accounts
Typically offer rates similar to high-yield savings accounts, in the range of 4.5% to 5.5% APY, especially at online banks without physical branches.
Money Market Funds
These are mutual funds investing in short-term debt and generally have yields close to prevailing short-term interest rates. Exact rates vary, but these funds are considered safe and liquid alternatives to savings accounts, usually yielding close to or slightly above 4% APY given recent Fed rates.
No-Penalty Certificates of Deposit (CDs)
Generally offer higher rates than savings accounts, with long-term CDs paying up to 5.5%, but no-penalty CDs typically have slightly lower rates, often around 4% to 5% APY depending on term length and institution.
U.S. Treasury Securities
Treasuries offer tax advantages (exempt from state and local taxes). Short- and intermediate-term Treasury yields fluctuate, but given the Fed’s current stance, intermediate-term Treasury notes likely yield in the range of 4% to 5%, depending on maturity. Treasury Inflation-Protected Securities (TIPS) provide returns adjusted for inflation, with yields varying based on current inflation expectations.
AAA-Rated Municipal Bonds
Generally provide lower yields than taxable bonds due to their tax-exempt status. Typical yields may be in the 3% to 4% range, but this depends on state, duration, and market conditions.
Intermediate-Term Bonds (e.g., Corporate or Government)
Yields depend on credit risk and duration, but intermediate-term bonds often offer yields between 4% and 5%. Corporate bonds have higher yields than Treasuries but come with greater credit risk and are fully taxable.
TIPS (Treasury Inflation-Protected Securities)
Provide protection against inflation by adjusting principal based on CPI. Yields on TIPS include a real yield plus inflation adjustments. Real yields for TIPS may be near zero to positive low single digits, meaning total returns vary with inflation.
In light of the Federal Reserve's expected rate cuts this year, it's essential for individuals to maximize the return on cash savings and minimize debt payments. If you're carrying high-cost debt, consider steps to reduce your debt burden, such as trying to secure a lower interest rate on a personal loan (the average rate of which is now 12.64%, according to Bankrate) or seeking a zero-rate balance transfer card.
For safe cash savings looking to maximize yield with minimal risk, a mix of high-yield savings accounts, short- to intermediate-term Treasury securities or TIPS, and AAA-rated munis (if tax-exempt income is a priority) represent viable options. It's also important to aggressively pay down high-cost debt and pad your emergency savings.
Sources:
- Bankrate
- LendingTree
- Axos Bank
- Freddie Mac
- Edmunds
- Chevy Chase Trust
- For individuals aiming to optimize their personal-finance portfolio, consider investing in a mix of high-yield savings accounts, money market accounts, and money market funds, which offer promising returns despite minimal risk.
- As the Federal Reserve is predicted to implement rate cuts in the year, it's crucial to make the most of cash savings while minimizing debt payments. One can explore opportunities for reducing high-cost debt, such as obtaining a lower interest rate on a personal loan or transferring balances to a zero-rate credit card.
- In the pursuit of safe cash savings that yield maximally, short- to intermediate-term Treasury securities, TIPS, and AAA-rated munis (if tax-exempt income is desirable) can serve as viable options in light of the current economic climate. It's also essential to actively work on paying down high-cost debt and augmenting emergency savings.
