These savings accounts earn a 1,600% higher interest rate than traditional ones, but most Americans don't use them

High-yield savings accounts have become an even better place to park cash you might need in the near future, while still growing your money.

With the Fed raising interest rates, the annual percentage yield (APY) on these accounts, which are typically offered by online banks, rose from 0.55% to over 4% in the last year, according to financial services company Bankrate. For a $10,000 investment, that works out to about $400 in annual interest, compared with just $55 a year ago.

Traditional savings accounts currently have an average APY of 0.23% — about 1,600% less than the rates offered by high-yield accounts. In dollar terms, that's a difference of $23 per year versus $400.

The interest rates on high-yield savings accounts are in the same ballpark as current annual yields on three- and five-year Treasury bonds, and nearly on par with the roughly 4.5% rate of return you can currently get on certificates of deposit (CDs) with $1,000 minimum deposits.

However, unlike bonds and CDs, you can easily withdraw the funds from a high-yield savings account relatively quickly, which makes them a good place to stash your emergency fund. High-yield accounts are also federally insured up to $250,000 per depositor.

There are some trade-offs to consider: These accounts often require a minimum deposit and it might take a few days to process a withdrawal.

Despite the higher interest rates, only about 20% of Americans have a high-yield savings account, according to a 2020 YouGov survey commissioned by Red Ventures.

"I think a lot of people don't even know about them," says Jessica Goedtel, a certified financial planner in Pennsylvania. Most people tend to already have accounts with big national banks, she says.

"If you're at a traditional bank, they're likely not sending you offers for them, if they offer them at all," she says. "It doesn't help that for the past few years rates really weren't that exciting. Once I explain to someone how much they could be earning in interest, they're usually quick to sign up."

Picking an online bank with a good APY is fairly easy since there are so many to choose from. Just keep in mind that accounts that offer the most competitive rates might also charge added fees, require minimum balances and a minimum number transactions within a billing cycle.

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