The Fed Raised Rates Again. Here's What That Means for Savings Account Holders

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KEY POINTS

  • The Federal Reserve has raised its benchmark interest rate by 0.25% for the second time this year.
  • While that's apt to drive up the cost of borrowing, those with money in savings could benefit from higher interest rates.

Don't worry -- it's good news.

Inflation has been battering consumers since mid-2021. Thankfully, the pace of inflation has come down since peaking in 2022. But we're worlds away from "normal" inflation, and the Federal Reserve isn't happy about that.

For this reason, the central bank has been raising interest rates pretty consistently. And on March 22, it raised its benchmark interest rate once more. The latest rate hike came to 0.25%, which isn't as aggressive as the Fed can get. But it still has consumers worried.

Rate hikes tend to lead to higher borrowing costs, whether in the form of an auto loan, home equity loan, or personal loan. And at a time when inflation is surging, many consumers are not in a position to afford higher loan payments.

But while rate hikes may not be the best thing for consumers looking to borrow, for those with money in savings, they can be a very good thing. That's because savers now stand to earn even more interest on the money they have in the bank.

Our Picks for the Best High-Yield Savings Accounts of 2024

APY
4.25%
Rate info Circle with letter I in it. See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
Min. to earn
$0
APY
4.25%
Rate info Circle with letter I in it. 4.25% annual percentage yield as of June 24, 2024
Min. to earn
$1
APY
4.50%
Min. to earn
$0.01

A solid opportunity for savers

The Federal Reserve is not tasked with setting the interest rates banks offer consumers. Rather, it oversees the federal funds rate, which is what banks charge one another for short-term borrowing purposes.

But when the Fed raises its federal funds rate, consumer borrowing rates and savings account rates commonly follow suit. So if you have money in a savings account, you might soon find that your bank starts paying you even more interest on that cash.

What’s more, CD rates might rise on the heels of this latest rate hike. As a reminder, once you lock in a CD, you're stuck with the same rate until it matures. But if you're looking to open a new CD, you might benefit from this recent rate hike.

Meanwhile, if you have a CD that's about to come due, you may want to roll that money into your savings account rather than a new CD. It might take banks a little time to adjust their CD rates, but waiting a bit to open another CD could mean snagging a higher interest rate on your money.

When will rate hikes stop?

The Fed is likely to continue raising interest rates until inflation levels start to moderate even more. In February, inflation sat at 6%, as measured by that month's Consumer Price Index. For context, the Fed wants inflation to dip all the way down to 2%. So clearly, there's work to be done.

Additional rate hikes could burden consumers who are looking to borrow, or those with variable-interest debt, such as credit card balances. But savers, thankfully, have a great opportunity to earn even more interest on their money. So if you're able to carve out a little extra cash to stick in the bank, now's a good time to do it.

In fact, it wouldn't be a bad idea to cut back on spending to free up more cash for your savings. Doing so might also lower your chances of landing in debt -- and getting stuck losing a lot of money to interest in that scenario.

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Two of our top online savings account picks:

Rates as of Jun 24, 2024 Ratings Methodology
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Citizens Access® Savings Capital One 360 Performance Savings
Member FDIC. Member FDIC.
Rating image, 4.00 out of 5 stars.
4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
Rating image, 4.00 out of 5 stars.
4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor

APY: 4.50%

APY: 4.25%

Min. to earn APY: $0.01

Min. to earn APY: $0

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