Who wins when the Fed raises interest rates?

After a momentary pause in interest rate hikes, it looks like another increase is on the horizon. The Federal Reserve has indicated another rate hike will occur after its upcoming July 25-26 meeting, resuming the overall trend of rising rates we’ve seen over the past year.

That’s unwelcome news for many consumers. When interest rates are high, borrowers pay more for everything from car loans to mortgages. Those with credit card debt pay more, too. And homeowners with adjustable-rate mortgages also see their monthly payments go up.

However, there are some consumers for whom the news isn’t so bad — in fact, it can actually help boost their finances. And, if you’re like many Americans, there’s a good chance you’re in this group.

You can benefit from higher interest rates by opening one of these high-yield savings accounts today.

Who wins when the Fed raises interest rates?

Borrowers may feel the pain of interest rate hikes, but for savers, higher rates are an opportunity to grow their savings faster. That’s because when interest rates are high, it costs banks more to lend out money. To pad their cash flow, they try to attract new deposit customers with higher rates.

Chances are one of your financial goals is to save more money. And whether you’re able to put aside a lot or a little, higher interest rates can help whatever money you deposit multiply faster. That’s why now is a great time to open a high-earning account — or to switch to one if your account isn’t keeping up with current offerings.

How you can take advantage of higher interest rates

To make the most of federal rate hikes, there are two easy things you can do today:

Open a high-yield savings account

High-yield savings accounts work just like regular savings accounts, except that they offer — you guessed it — higher yields.

How much higher? The average savings account rate as of July 17, 2023, is 0.42%, according to the FDIC. Today’s top high-yield accounts, by comparison, offer rates up to 5.05%. That’s roughly 12 times higher.

Over time, that extra interest can make a sizeable difference in your balance. And the only work you have to do is opening the account. After that, you can just sit back and watch your earnings accumulate.

Check out current high-yield savings account rates here to find out how much you could be earning.

Open a certificate of deposit (CD)

Certificates of deposit, or CDs, often provide higher interest rates than even high-yield savings accounts. For instance, today’s highest-paying CDs have interest rates as high as 5.48%.

The biggest difference is that with a CD, you agree to keep your money in the account for a predetermined period, known as the term. If you withdraw funds before the term expires, you may incur penalty charges.

To make the most of high interest rates, consider opening a short-term CD that expires in three to 12 months. This way, you lock in today’s high rates for the duration of the term, but if rates go even higher in the future, you can renew the CD at those rates. You can also create a CD ladder to enjoy this flexibility while potentially locking in the even higher rates long-term CDs offer. 

See the most up-to-date CD rates here.

The bottom line

While interest rate hikes generally aren’t considered positive for consumers, they can benefit those looking to earn more money from their savings. To maximize your benefit from any upcoming rate increases, consider opening a high-yield savings account or CD (or both) and watch your savings grow.