How could another Fed rate hike affect savers? Here's what experts think

After pausing federal interest rate hikes in June, the Federal Reserve looks poised to increase rates once again at its Federal Open Market Committee (FOMC) meeting this week. That would bring rates to the highest they've been in over two decades, at a target range of 5.25 to 5.50%. 

While that does mean the cost of borrowing money (loan, lines of credit, etc.) may soon rise again, it's another big win for savers. Some high-yield savings accounts are already earning upwards of 5% APY today, and could soon earn even more. But this rate hike could also bring some important signals for savers to keep in mind for the future.

Find out how much more you could earn on your balance by comparing today's top savings rates here.

How could another Fed rate hike affect savers? 

Here are a few ways experts say another federal rate hike this week could affect your savings — and how you can benefit by choosing the right savings option for you.

Higher savings interest rates

Like we've seen in the past, there's a good chance that banks will respond to another rate hike by increasing the rates they offer savers. 

"If the Fed raises short-term interest rates, this will increase the yield on short-term accounts like high-yield savings and short-term CDs," says Michelle Vargas, CFP, president of Waymaker Financial Planning.

Banks don't directly tie their APYs to the Fed's moves, but they do tend to follow pretty closely. Over the past several months of rate hikes, we've seen high-yield savings account rates increase alongside federal savings rates as banks compete amongst each other for your balances. 

Compare some of the best savings rates available now here!

Increases may be small

However, you should keep your expectations balanced. Not only is the Fed expected to raise rates by just a quarter of a percentage point, but it could be close to ending its rate hike campaign for a while.

"Another rate hike will likely encourage some banks to offer higher savings rates, however, it is unlikely to be a substantial change," says Mike Zeiter, CFP, owner and financial planner at Foundations Financial Planning. "Most banks are aware of the rate environment and know that the Fed is likely near the end of the rate hiking cycle."

Fed officials have said they remain committed to evaluating economic conditions meeting-by-meeting. 

"Participants agreed that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks," the June meeting minutes read. So if inflation continues to fall and the job market is strong, the Fed may be prepared to hold rates where they are. 

If that's the case, we're likely already near the peak of what banks are willing to offer savers on their balances. You can make sure you're still getting the best deal by keeping an eye on any existing high-yield savings accounts you have, and comparing them with other options. Depending on the size of any increased rates, it could make sense to move your balance elsewhere.

Why you should start saving now 

While a Fed rate hike is likely this time, "it's unlikely that we'll continue to see substantial interest rate increases in the remainder of this year," says Natalie Taylor, CFP, founder of Natalie Taylor Consulting Services, "given that previous interest rate increases are starting to show signs of significant progress in cooling inflation."

Approaching the end of the increasing interest rate cycle we're in means now is one of the best times to open a high-yield savings account. 

For short-term balance you may need access to with little notice, a high-yield savings account has flexibility while still offering great APYs. These can be great for your emergency savings or other savings goals. You can get upwards of 4.5% APY with many of these accounts and some even offer 5% right now. 

Another detail to remember is that high-yield savings accounts carry variable interest. If you open an account with a competitive rate today, you may have your rate automatically boosted if the bank raises APYs after another rate hike. However, it also means your current rate won't last forever; when rates eventually fall, your APY can too. By starting to save sooner rather than later, you can take advantage of high rates for as long as possible.

See how much you could be earning with today's top savings rates now.

The bottom line

If the Fed does implement another federal interest rate hike this week, interest rates on high-yield savings accounts could go up, too. But it's important for savers to know we may be reaching the end of the current cycle of rate hikes. While the Fed is likely to hold rates high for a while, it can pay to start contributing to a high-earning account today so you'll have ample time to boost your balance with interest earnings before the rate environment changes.

Get started today by comparing some of the best savings rates here.