What the Federal Reserve Interest Rate Increase May Mean for Your Savings Account

In June 2018, the Federal Reserve raised its benchmark interest rate by a quarter of a percentage point to a target range of 1.75 to 2 percent. The move came as the labor market has continued to strengthen and economic activity has been rising at a solid rate, according to a Federal Reserve press release. “Job gains have been strong, on average, in recent months, and the unemployment rate has declined,” according to the Fed release.

This was the second time in 2018 that the Fed raised its benchmark interest rate, commonly known as the federal funds rate, which is the interest rate banks charge each other to lend funds overnight. The Fed raised its benchmark interest rate three times in 2017.

With all of this talk about the Federal Reserve and interest rates, you may be wondering: When will savings account interest rates rise?

If you have a savings account, or are considering opening one, consider these takeaways on savings interest rates:

Higher interest rates can encourage saving

As the Federal Reserve raises interest rates, you may see banks raise savings account interest rates, too. That means you can earn a little more for every dollar in your savings account.

Eager to know when savings account interest rates will rise after seeing headlines announcing a Federal Reserve rate hike? If banks do decide to raise savings account interest rates, it may not happen right away, so the impact to your finances will not be immediate. You can typically log into your savings account to confirm the interest rate you are earning, often expressed as the Annual Percentage Yield (APY), or you can check on your bank’s website.

Comparison shopping can help you find the best savings account interest rate

With the Federal Reserve increasing interest rates and banks potentially passing higher savings interest rates on to consumers, it is well worth the time to shop around for the best rates. This is especially true as many large, brick-and-mortar banks are still offering little to no interest on savings accounts.

If you’re considering opening an online savings account, keep a close eye on the APY to see which account could give you the most interest earnings. The higher the APY, the more money you will be able to put toward your financial goals. Unlike a savings account interest rate, the APY considers how often the interest compounds. Your savings account interest could compound daily, monthly, quarterly or annually.

When comparing accounts, don’t forget to consider other features, including minimum balance requirements, fees and access to customer service.

When will savings account interest rates rise?

While the Federal Reserve interest rate increase may mean a little more in your savings account (thanks to a higher savings account interest rate), practicing good money habits consistently will help you the most. Build an emergency fund, keep your spending within your means, save regularly and remember your financial goals to stay motivated.