By James McClenathen

Copyright fool

The Federal Reserve just announced that it will lower the target federal funds rate by 0.25 percentage points to a range of 4.00% to 4.25%.

It’s a small rate cut that has been expected for months, so don’t expect any huge changes in savings and loan rates just yet.

That said, savings account and CD rates will probably drop soon. Here’s what you need to know — and what you should do now.

How the rate cut could affect your savings

Some banks may cut their savings and CD APYs within a matter of days, while others may hold steady for a while.

Here’s why.

When the Fed cuts rates…

Banks’ borrowing costs go down. When banks can get cheaper short-term funding, they’re under less pressure to pay high APYs to bring in deposits.Savings rates tend to drop. Big banks with “sticky” customers often cut their savings rates first. Other banks may hold rates higher to stay competitive.CD rates may drop quickly. CD rates are set with the future in mind, because they’re fixed for months or years. If banks expect more cuts, then they may lower their CD rates quickly. We saw several banks cut some of their CD rates this summer, likely in anticipation of today’s interest rate cut.

So, while a Fed rate cut makes it easier for banks to pay customers less interest, not every bank will cut rates right away. Others might ease their customers into it with a series of very small rate cuts over the course of months.

What to do now

First, keep in mind that this is a small interest rate cut, so there’s no need to make any dramatic changes in your financial plan. That said, now is a good time to do the following.

Move your savings to a high-yield savings account

When savings rates are on the decline, it’s even more important to get the highest APY possible. Many big banks are paying as little as 0.01% APY, while high-yield savings accounts pay about 3.80% or more.

For most savers, that’s a difference of hundreds of dollars in interest every year. So if you don’t have a high-yield savings account, check out our list of the best high-yield savings accounts and open one ASAP.

Lock in a high-yield CD

Some CDs still offer APYs of 4.00% or more, but those rates could vanish soon. To protect your money from short-term and long-term interest rate cuts, you can open a CD with a term ranging from 3 months to 5 years.

Short-term CDs currently offer higher rates. However, if interest rates continue to drop — as most Federal Reserve leaders expect — then you may be glad you locked in today’s high yields for several years.

To hedge your bets, you can always build a “CD ladder” by splitting your money between several CDs with different terms. When each CD matures, you can either withdraw your cash or put it into a new CD if you like the going rates.

To capitalize on today’s high rates before they disappear, click here to see our list of the best CD rates and lock one in.