The Fed Just Raised Rates: Where to Put Your Cash Now

On September 16, the Federal Reserve raised its benchmark interest rate by 25 basis points, pushing the target range to 3.75% to 4%. It was the first hike in three years, and the 12-0 vote tells you the committee wasn't divided about it. Inflation is running at 3.8% year over year, energy prices are up sharply, and 16 of 18 Fed officials projected at least one more increase before 2026 ends.

That's the macro picture. The money sitting in your savings account is about to earn more interest, but only if it's in the right account.

Most Savers Are Leaving Money on the Table

A Bankrate survey found that two-thirds of Americans with savings earn less than 4% APY. About 17% earn no interest at all. Another 11% don't even know what rate they're getting.

Meanwhile, the FDIC's national average savings rate sits at 0.38%. If you have $10,000 in a traditional savings account at a big bank paying that average, you're earning roughly $38 a year. A high-yield savings account paying 4.15% on that same $10,000 would earn you about $415. That's a $377 gap, and it grows with every dollar you add.

Better options exist. Most people just never switch. Banks count on that inertia. Your old account gets grandfathered into a low rate, and nobody sends you a letter saying "hey, you're losing hundreds of dollars a year." You have to go looking.

What Actually Changed With the Rate Hike

When the Fed raises its benchmark rate, banks can charge more for loans and, in theory, pay more on deposits. In practice, big banks are slow to pass rate increases along to savers. Chase, Bank of America, and Wells Fargo have historically kept their savings rates near the floor regardless of what the Fed does.

Online banks and credit unions are a different story. They have lower overhead (no branches, smaller staffs) and compete for deposits by offering rates that track the Fed more closely. Within days of the September 16 hike, several online banks nudged their rates upward. NerdWallet reports that top high-yield savings accounts are now paying up to 4.21% APY, and Bankrate lists options reaching 4.10% to 4.20%.

The short version: if your money is parked at a brick-and-mortar bank earning 0.01% to 0.50%, this rate hike does almost nothing for you. You have to move your cash to benefit.

Your Options, Ranked by Flexibility

Each of these works differently, and the right pick depends on when you'll need the money.

High-Yield Savings Accounts (HYSAs)

These are the most flexible option. Your money stays liquid (you can withdraw anytime), you earn a competitive rate, and most are FDIC-insured up to $250,000. The tradeoff is that rates are variable. They'll go up when the Fed raises rates, but they'll also drop if the Fed reverses course.

Right now, top HYSAs are paying between 4.00% and 4.21% APY. A few outliers like GO2bank offer up to 4.50%, though that rate applies only to the first $5,000. For most people, an account with no balance cap and minimal requirements is the better choice.

A HYSA is the right fit if you want to keep your emergency fund accessible, if you're saving for a goal within the next one to two years, or if you just want your idle cash working harder. Moving your existing savings from a 0.38% account to a 4.10% account takes about 15 minutes and doesn't require closing your old account.

Money Market Accounts

Money market accounts sit somewhere between checking and savings. They often come with check-writing privileges or a debit card, and their rates tend to be competitive with HYSAs. The catch is that many require higher minimum balances ($1,000 to $2,500 or more) and may charge monthly fees if you dip below the threshold.

If you already keep a large cash balance and want some spending access, a money market account could work. Otherwise, a HYSA with a linked checking account gives you more or less the same flexibility without the minimum-balance headache.

Certificates of Deposit (CDs)

CDs lock in a fixed rate for a set term, typically three months to five years. The advantage is certainty: if rates drop later, your locked rate doesn't budge. The disadvantage is that you'll pay an early withdrawal penalty if you need the money before the term ends.

After this hike, top CD rates are in the 4.00% to 4.50% range depending on term length. The catch is that if the Fed raises rates again (and the September projections suggest that's likely), a CD you lock today could look mediocre in three months. Short-term CDs of six months or less give you some rate protection without tying up your money for too long. Another option is a bump-up CD, which lets you request a rate increase once during the term if market rates climb. Not every bank offers them, and the starting rate is usually a bit lower, so read the fine print.

Treasury Bills

T-bills are short-term government securities you can buy through TreasuryDirect.gov or a brokerage account. They're backed by the U.S. government (even safer than FDIC insurance, technically) and their yields tend to move in lockstep with the Fed's rate. After this hike, short-term T-bill yields are competitive with the best HYSAs.

One tax perk: T-bill interest is exempt from state and local income tax. If you live in a high-tax state like California or New York, that makes a noticeable difference in your after-tax return. The downside is that T-bills are less convenient. You buy them at auction, they mature on a fixed date, and they don't have the "transfer money in five seconds" simplicity of a savings account. For your core emergency fund, a HYSA is still easier. For cash you won't need for three to twelve months, T-bills are worth a look.

How to Actually Make the Switch

Knowing you should move your money and doing it are two different things. So I'll keep this concrete.

Step 1: Figure Out How Much Cash You Have Sitting Around

Check every account: savings, checking, any old accounts you forgot about. If your checking account balance regularly sits above what you need for monthly bills, that excess cash should be earning interest somewhere.

Step 2: Pick an Account

For most people, a high-yield savings account at an online bank is the easiest win. Look for no monthly fees, no minimum balance requirements, and an APY above 4%. NerdWallet, Bankrate, and The College Investor all publish updated rate comparisons. Make sure the bank is FDIC-insured (or NCUA-insured, for credit unions).

Step 3: Open and Fund It

Most online accounts take five to ten minutes to open. You'll need your Social Security number, a government ID, and a linked bank account for transfers. Fund it with an ACH transfer from your existing bank. Initial transfers usually take one to three business days.

Step 4: Set Up Automatic Transfers

Once the account is open, set up a recurring transfer from your checking account. Even $50 or $100 a month adds up, and you'll barely notice it leaving your checking balance. You don't want to drain your checking account. You just want to make sure money you aren't spending is earning something.

Step 5: Revisit Every Few Months

Rates change. The bank that's paying 4.21% today might drop to 3.80% in six months, while a competitor moves to 4.40%. You don't need to chase every tenth of a percent, but a quick check every quarter keeps you from falling behind. Bankrate's rate tracker and NerdWallet's best-of lists are good bookmarks for this.

What About Another Rate Hike?

The September projections from the Fed suggest at least one more 25-basis-point increase is on the table before year-end. If that happens, HYSA rates will likely tick up again, and CD rates will follow. That's an argument for keeping your cash liquid (in a HYSA or short-term T-bills) rather than locking into a long-term CD right now. You want to be positioned to capture higher rates as they arrive, not locked into today's rate while yields climb past you.

Of course, nobody knows for certain what the Fed will do. Inflation could cool faster than expected, or the economy could slow enough to make the committee rethink. But right now, rates are rising, and savers benefit.

The Bottom Line

The Fed's September rate hike is good news if you're holding cash, but only if your cash is in the right place. The national average savings rate of 0.38% is costing you hundreds of dollars a year in lost interest compared to high-yield alternatives paying 4% or more.

The fix takes about 15 minutes: open a high-yield savings account at an online bank, transfer your cash, and set up automatic deposits. You don't need to close your old account or change your direct deposit. Just stop letting your idle money sit in an account that pays you almost nothing while better options are a few clicks away.