Localizing sound sources in three spatial dimensions (azimuth, elevation, and distance) is critical for human hearing comfort. It relies on two binaural cues: interaural time difference (ITD) and interaural level difference (ILD). Cochlear or auditory nerve injury can result in sensorineural hearing loss (SNHL). Hearing aids enable people with sensorineural hearing loss to converse more effectively and hear better. However, there is an apprehension that the binaural hearing aids may degrade the localization cues, thus affecting the source localization. In response to this concern, the current study investigates how the binaural hearing aid algorithm affects source localization by adopting a cascaded structure of noise reduction technique (wiener filter) followed by filter bank summation (FBS) based spectral splitting and dynamic range compression for binaural dichotic presentation. Listening tests for seven different azimuth angles (-90⁰, -60⁰, -30⁰, 0⁰, 30⁰, 60⁰, and - 90⁰) were conducted on six listeners with normal hearing under different signal-to-noise ratio (SNR) conditions as well as on six subjects with mild bilateral sensorineural hearing impairment. Test stimuli included background glass-breaking sound and broadband noise for participants with normal hearing. In an experiment with hearing-impaired subjects, the glass-breaking sound served as one of the test stimuli. The result showed that these binaural hearing aid algorithms had no adverse effects on localization ability.