The Federal Reserve Could Raise Interest Rates Again This Month. Here's How It'll Impact Your Savings

Ah, inflation -- it's been the stuff of financial nightmares for too many Americans since it first started spiraling out of control in spring 2021. Higher prices for just about everything led to more money stress and more compromises with debt and savings for regular consumers. Thankfully, the 10 straight hikes to the federal funds rate implemented by the Federal Reserve since March 2022 have had an impact -- inflation peaked at 9.1% in June 2022 but just a year later, it had fallen to 3%.

That reduction came at a pretty heavy cost. The higher federal funds rate isn't directly reflective of consumer interest rates on financial products like mortgage loans, personal loans, and credit cards, but the two are related. If the Federal Reserve raises rates, lenders typically do too. That means you'll pay more to borrow money. It's not all bad news though -- if you've got money in the bank, there's good news for you.

You can earn a higher APY on your savings

Along with higher rates on loans and credit cards, the recent spate of rate hikes has also brought with it higher APYs on savings accounts, money market accounts, and CDs, especially those offered by online-only banks. Online banks were already able to offer better rates to customers than traditional banks, because they don't have physical bank branches to maintain and can pass those savings along to account holders.

What does this mean in real money? As an example, I have the bulk of my savings in an account with an online-only bank. I've watched the APY on my account rise since I opened it last spring, and as of this writing, I'm earning 4% on my savings. As far as translating that to an actual dollar amount, if you have $10,000 in an account earning 4% APY, you'll make nearly $400 on it in a year (if you don't withdraw money or add any more to the account). This is pretty great -- I actively look forward to getting my monthly interest payment and then immediately funneling it toward a savings goal.

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

American Express® High Yield Savings APY 4.10% Rate info 4.10% annual percentage yield as of October 15, 2024 Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	APY 4.10% Rate info 4.10% annual percentage yield as of October 15, 2024	Min. to earn $0
Capital One 360 Performance Savings APY 4.10% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Sept. 27, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	APY 4.10% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Sept. 27, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0
CIT Platinum Savings APY 4.70% APY for balances of $5,000 or more Rate info 4.70% APY for balances of $5,000 or more; otherwise, 0.25% APY Min. to earn $100 to open account, $5,000 for max APY Open Account for CIT Platinum Savings On CIT's Secure Website. Member FDIC.	APY 4.70% APY for balances of $5,000 or more Rate info 4.70% APY for balances of $5,000 or more; otherwise, 0.25% APY	Min. to earn $100 to open account, $5,000 for max APY

What's next for interest rates -- and your savings?

Recent reporting by Reuters suggests that despite pausing on interest rate hikes at its June meeting, the Federal Reserve may be ready to implement another one at the upcoming July meeting (July 26-27). A 3% inflation rate is a huge relief, but the Fed aims for 2% inflation. This rate is "most consistent with the Federal Reserve's mandate for maximum employment and price stability." So we've still got a little ways to go to get there.

Ultimately, if we do get another fed rate hike, you might see a bump in your savings account's APY. That in turn means you'll earn more money on your money, so to speak. But it's important to remember that savings account APYs aren't fixed. So if the Federal Reserve starts bringing the federal funds rate down late this year or next, you're likely to see your rate drop too.

Now is a great time to have money in savings, be it for an emergency fund or a short-term savings goal, such as buying a home (that's what most of the money in my savings is for these days). So if you haven't shopped around for a new savings account in a while, I recommend taking a look at our list of the best savings accounts out there. You, too, can earn 4% -- or more -- on your saved cash.