Holding your breath for mortgage rates to fall? There are 3 places to earn interest on money while you wait

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• Mortgage rates are still relatively high after the Federal Reserve cut rates last month.
• The Federal Reserve is expected to cut rates again, so it might be worth waiting for rate drops.
• There are three types of bank accounts that can help you earn interest on your cash while you wait.

Mortgage rates haven't fallen as far as many people expected in 2024. The Federal Reserve cut its rates for the first time in years on September 18. Usually, mortgage rates fall after the Fed cuts rates, but mortgage rates have been rising slightly since the September 18 Fed meeting. This is likely because recent strong economic data means the Fed isn't predicted to cut rates as harshly in its last two 2024 meetings as originally thought.

That being said, the Fed is expected to continue cutting rates in 2025, so forecasters are expecting mortgage rates to trend down next year. If you want to wait out mortgage rate drops before you take out or refinance a mortgage, here are three types of bank accounts you could use to earn interest on your mortgage fund while you wait.

High-yield checking accounts combine liquidity and interest

Most checking accounts offer low or no interest, making them a bad place to store money you're not actively planning on using. But high-yield checking accounts could be a good choice if you can meet their very specific requirements.

The best high-yield checking accounts offer some of the highest interest rates you can find from nationwide financial institutions. For example, the OnPath Rewards High-Yield Checking has an interest rate of up to 7.00% * APY, and Genisys Credit Union Genius High Yield Checking has an interest rate of up to 6.75% APY. Even the best national high-yield savings accounts have rates that cap out in the 5% APY range.

Unfortunately, these accounts generally come with pretty serious limits. It's common for high-yield checking accounts to only pay a high rate on the first few thousand dollars in your account. The rest of your money will earn a much lower rate. You'll also have to meet strict requirements to earn a high rate; some common requirements include putting a certain amount of direct deposit money into your account or using the account's debit card a certain number of times each month.

While liquidity is important, you might find that high-yield checking accounts are too easy to withdraw money from — especially if your account requires you make a certain number of monthly purchases. If you're using a high-yield checking account to reach your mortgage savings goal, you'll have to keep tabs on your spending to avoid accidentally taking out money you were hoping to save.

Savings accounts and CDs are easy to manage and qualify for a high APY

If you're saving up money for a mortgage you plan to open within the next year, high-yield savings accounts and short-term CDs could be your best bet.

High-yield savings accounts give you easier access to your money than CDs, so they could be a good choice if you want to be able to open a mortgage at the exact right time. CDs require you to commit to keeping your money in the CD for its entire term length without withdrawals; if you do withdraw before the end of the term length, you'll be charged early withdrawal penalties.

Right now, the best high-yield savings account rates are high compared to the best CD rates. That's because banks are expecting the Federal Reserve to drop rates. High-yield savings accounts have variable interest rates, which means banks could change your rate at any time. CDs offer fixed interest rates — your rate will stay the same for the CD's entire term length. Banks don't want to be locked into a super high rate, so CD rates are lower in anticipation of further rate drops.

That being said, there are higher short-term CD rates vs long-term CD rates, and the Fed is expected to cut rates as soon as early November. It might be worth opening a short-term CD for your mortgage fund so you can lock in a high rate.

The highest nationwide short-term CD we've found is the Nuvision Federal Credit Union 8 Month Certificate Special, which has an interest rate of 5.50% APY, but you can only put up to $5,000 in it. The highest short-term CD without a restrictive maximum balance is the Newtek Bank 6 Month CD, which has an interest rate of 5.25% APY.

What not to use for your mortgage fund

If you want to take advantage of low mortgage rates, you'll probably want your money to have some manner of liquidity. Because of this, putting your money in a brokerage account for investments or using a long-term CD probably aren't your best bets.

While low-risk investments can be a good choice for long-term savings goals like retirement plans, you aren't guaranteed a stable interest rate like you are with FDIC-insured bank accounts. It's very possible you could end up with less money in a year with an investment than what you started with. For that reason, you're better off avoiding investing for money you want to use within five years.

Long-term CDs aren't a good call because it's hard to predict what the market will look like that far in the future. If you're hoping to take advantage of next year's low mortgage rates, a 3-year, 4-year, or 5-year CD won't have the liquidity you need to respond quickly.