The Federal Reserve is expected to deliver its first interest rate increase since 2023 when its next meeting concludes on September 16, creating fresh opportunities for savers while raising borrowing costs for households.
There was a nearly 90% likelihood on Monday that the US central bank would lift its benchmark rate by 25 basis points, taking it to a range of between 3.75% and 4.00%.
The move would make borrowing more expensive for people seeking mortgages, refinancing, personal loans or credit cards. Savers, however, could benefit if they move money away from conventional savings accounts, where the average interest rate is 0.38%.
How savers could respond to a Federal Reserve rate rise
Three types of account may offer more attractive returns: certificates of deposit, high-yield savings accounts and money market accounts. They can be used separately or alongside one another, depending on how much access savers need to their money.
Certificates of deposit, commonly known as CDs, currently offer rates of up to 4.50% in the US. Their interest rates are fixed, allowing account holders to know how much they will earn when the account reaches maturity.
That certainty comes with a restriction. Money placed in a CD should generally be left untouched until the maturity date, as early withdrawals can trigger a penalty and reduce the return.
High-yield savings accounts offer another option for people who want to retain access to their money while earning a rate above 4%. Unlike CDs, their rates are variable and can respond to market conditions and further Federal Reserve decisions.
That means the rate may be lower than the best available CD rate at present, but it could rise if the central bank increases rates again. The account may therefore suit savers who want flexibility as well as the possibility of higher returns in the future.
Money market accounts generally offer rates of up to, or just below, 4%. Their rates are also variable and could increase after a further rise in official interest rates.
They provide an additional feature not offered by the other two account types: the ability to write cheques. This may appeal to people looking to combine everyday banking with a potentially higher rate of interest.
Savers are advised to compare accounts before committing their money, as rates vary between banks. The most suitable choice will depend on whether the priority is a fixed return, continued access to funds or the ability to use the account for payments.
