An expert advises taking immediate action to maximize returns on cash holdings, as the Fed is preparing to lower interest rates.

• The Federal Reserve may announce another interest rate cut this week.
• Experts advise cash savers to verify if they are obtaining the highest yields, which is a wise move.

It's a great time to earn competitive returns on cash as the Federal Reserve is predicted to cut interest rates again this week, experts advise.

According to Greg McBride, chief financial analyst at Bankrate, the top savings account, money market, and CD rates remain above inflation and are expected to continue doing so through 2025.

Experts predict that the Fed may reduce interest rates by one-quarter of a percentage point on Dec. 18, marking the third time the central bank has lowered rates since September for a total reduction of one full percentage point.

"McBride stated that there is a sense of urgency to act immediately, as waiting will not result in improved yields."

Yields may be lower by January

Those who hesitate to act may miss out on higher returns for their cash.

McBride stated that there is a high probability that yields will decrease next month compared to the present, given the availability of funds to invest.

He stated that by investing that money now, you can achieve yields that are significantly higher than inflation.

McBride stated that treasury bonds and several CDs are providing yields above 4%, allowing investors to secure that rate for an extended period.

He stated that it could be a chance for savers who don't require instant access to their funds, or who are seeking to generate interest income or diversify their overall investment portfolio.

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Another investment option, I bonds, can help beat inflation with a guaranteed 1.2% fixed rate above the rate of inflation, according to McBride.

Notably, I bonds have restrictions, such as a limit on annual purchases, a prohibition on cashing them in the first year, and a requirement to forfeit three months' interest if they are cashed in before the five-year mark, McBride stated.

To get the most out of your investment, you must be confident in your ability to survive without the money, according to McBride.

Instead of investing in I bonds, investors may choose to invest in Treasury Inflation Protected Securities (TIPS) for inflation protection. TIPS offer higher annual investments and more liquidity since they can be bought and sold on the secondary market. Currently, a five-year TIP yields 1.88% above inflation as of Dec. 16.

When to prioritize cash liquidity

The decision to lock in returns on cash now largely depends on the 2025 outlook.

There may not be as much urgency to lock in cash returns if there are fewer expectation for interest rate cuts in 2025, according to Ken Tumin, founder of DepositAccounts.com.

Online savings accounts typically provide higher interest rates than CDs, with some banks offering over 5% annual percentage yields on small balances. In contrast, the best one-year CD currently offers a 4.65% rate with a $50,000 deposit.

Tumin suggested that one strategy currently is to maintain liquidity in a top online savings account rather than locking it in.

Savings accounts and CDs may be used by savers to hedge their bets, according to him.