Will high-yield savings rates rise after the Fed's rate hike?

When the Federal Reserve increases interest rates, it affects borrowers, lenders, and investors — usually in negative ways. But what about savers?

If you're among the millions of Americans who rely on savings for emergency funds, retirement nest eggs or other financial goals, you're one of the fortunate people who can actually benefit from higher rates. In this article, we'll explore why savings rates are likely to rise after the Fed's latest rate hike and how high-yield accounts can help you capitalize on this rise.

Explore high-yield rates now to find out how much more you could be earning.

Will high-yield savings account rates rise after the Fed's rate hike?

In short: Yes. Savings account rates are based on the Federal funds rate, so when that rate goes up, so do savings rates. That means savings accounts, CDs and other deposit products earn more.

A rate hike can also net you higher interest rates because a higher Federal funds rate makes it more expensive for banks and other financial institutions to lend money. One way they try to maintain profit margins is by attracting more deposits from consumers. As banks compete for customers, some offer higher rates than others. By shopping around, you can find the accounts with the highest rates and maximize your yields.

"There is a pretty significant spread between banks on interest rates offered on savings accounts," says Tim Melia, CFP, MBA, principal and financial planner at Embolden Financial Planning LLC. "It's a great time to compare institutions and the rates being offered."

Compare savings rates today to get the biggest return on your money.

Perks of high-yield savings accounts

While all types of savings accounts benefit from a rate hike, high-yield accounts particularly thrive. Here's why.

They earn up to 15 times more interest

High-yield savings accounts, as you might expect, offer higher yields than regular savings accounts. But just how much higher may surprise you.

Average interest rates for regular accounts are currently 0.39%, according to FDIC data. By contrast, rates for high-yield savings accounts range from around 3.75% to 4.75%. That's about 10 times higher. In recent months, the difference has been up to 15%.

"In today's interest rate environment, high-yield savings accounts make a lot of sense for someone who otherwise has idle cash in a low/no-interest account," says Jim Eutsler, CFP, ChFC, CMA, Wealth Advisor at Hengehold Capital Management, LLC. "Many high-yield savings accounts pay… significantly more than the average checking or bricks-and-mortar savings account pays. This rate differential can equate to hundreds, if not thousands, of dollars in increased interest income annually depending on how much money you are able to save into it."

They offer better terms

Many high-yield savings accounts are offered by online banks. These banks have less overhead than traditional brick-and-mortar banks, which means their costs are lower and they can afford to provide better terms to their customers. For example, many online banks offer low or no maintenance fees or minimum account balances.

They're safe

Compared to more volatile financial products, such as stocks, high-yield savings accounts are a safe place to keep your money. They're protected by FDIC insurance up to $250,000 per bank, per account (or NCUA insurance for the same amount for credit unions). So even if your bank fails, the government protects your money up to that amount.

Plus, unlike products like stocks, you won't lose your initial deposit in a savings account if market conditions change. You may not earn as much if interest rates go down, but your initial balance won't be affected.

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The bottom line

High-yield accounts are one of the easiest ways to grow your savings, and the latest Fed rate increase makes them worth even more. It's just one more reason you should switch to a high-yield account today.

"Now that rates increased, there is more of a benefit to making this move," says Jim White, CFP, EA, founder of Great Oak Wealth Management. "If you currently receive 0.5%, 1%, or even 1.25% from your current savings account versus 4%+ from high-yield savings, the difference, over time, would be substantial."