Federal Reserve interest rate hikes have made paying off debt more expensive. But one positive outcome is that rock-bottom interest rates on high-yield savings accounts are finally rising.
In fact, rates have climbed to their highest level since 2019, according to Greg McBride, Bankrate's chief financial analyst.
High-yield savings accounts, typically provided by online banks, offer higher compound interest rates than traditional savings accounts, allowing your savings to grow faster. The amount of money you earn over the course of a year, known as the annual percentage yield, or APY, is directly affected by Federal Reserve rate hikes.
Around this time last year, high-yield savings accounts had APYs close to 0.5%. However, these days you can find accounts that offer APYs just over 2%. That's far more than traditional savings accounts, which are currently offering average interest rates around 0.13%, according to Bankrate.
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The rates on high-yield savings accounts will likely keep climbing, too: "Since more Federal Reserve interest rate hikes are expected later this fall, these rates could climb closer to 3%," McBride says. That would be the highest rate since 2009, he adds.
For context, $10,000 deposited into a high-yield savings account with 0.5% APY would earn $511 in interest over 10 years. The same amount at 3% APY would earn $3,439 over the same time span — a $2,928 difference.
Of course, 3% APY won't provide a lot of shelter against inflation, which has soared to 8.5%.
"Inflation will always eat away at returns," says Jason Siperstein, a certified financial planner and president of Eliot Rose Wealth Management. "That doesn't mean you shouldn't consider a high-yield savings account— it's still one of the better options available for short-term needs."
Those short-term needs include any amount of money you might need to spend quickly, like an emergency fund or a down payment for a house. Plus, your money will be safe: Cash in a high-yield savings account is FDIC-insured up to $250,000.
The downside to these accounts is that APY rates can fluctuate, and that banks offering the best rates might require a minimum balance or charge withdrawal or monthly fees. But there are plenty of online banks that offer accounts so it's easy to shop around.
CNBC Select has a roundup of some of the best high-yield savings accounts available now.
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