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

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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.

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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