Putting money into a high-yield savings account is a great way to maximize your income and grow your money over time. But based on today’s interest rates, how much money are you actually making?
Our Savings Calculator makes it easy to find. Using the three sliders at the bottom of the calculator, choose your initial deposit, the amount you plan to save each month going forward, and the number of years you plan to save at this rate.
As you make your selection, the calculator will automatically update to show your projected total interest income based on the 4.50% APY rate, compared to what you’d earn if you stuck to the national average savings account rate, which is just 0.42%.
Compare Savings Account Rates
A 4.50% APR may seem high—and it is, compared to typical savings account rates. The good news is that many banks offer competitive interest rates – some even in the 5% range. You just need to know where to find them. Fortunately, we have done this work for you:
What You Need to Know About High Yield Savings Accounts
To get the most out of your high-yield savings accounts, it’s important to understand how they compare to regular savings accounts. Interest rate differences and where to find the best rates are the two main differences.
How High Yield Savings Accounts Work
A high-yield savings account is a type of savings account that typically offers a higher interest rate than a traditional savings account. You can find these accounts at banks and credit unions. However, you’ll often find the best rates at online banks that have lower administrative costs than traditional brick-and-mortar banks and pass those savings on to customers through higher yields and lower fees.
Interest on a high-yield savings account is compounded, which means it is calculated and added to your balance at regular intervals. Essentially, your interest generates interest. Interest can be compounded annually, quarterly, monthly or even daily – the more it is compounded, the faster your balance will grow.
For example, let’s say you put $10,000 into a high-yield savings account earning 3% annual interest, compounded annually. At the end of the year, you will have $10,300.00 in your account. But if the interest compounded daily, you’d get $10,304.53.
According to the Federal Deposit Insurance Corporation (FDIC), the current national average savings account interest rate is 0.42%. However, some of the best high-yield savings accounts offer annual interest rates of 5% or more.
What to look for in a high-yield savings account
Before opening a high-yield savings account, it’s crucial to shop around and compare accounts at multiple financial institutions. Some key features you might evaluate include:
- Annual Yield (APY): The main attraction of a high-yield savings account is the higher interest rate, or annual rate of return. The higher the APY, the more your money will grow over time.
- cost: Earning high interest rates doesn’t matter if you’re losing money on monthly fees. Before you open an account, find out what types of fees your bank charges, such as ATM fees, transfer fees, and penalties for falling below the minimum balance. You should choose a low-fee or no-fee account to maximize your earnings.
- minimum balance requirement: Some banks require minimum account balances to maximize yield, avoid fees, or keep accounts open. If you can’t maintain this balance, you may be better off with another account. Give preference to high-yield savings accounts with low or no minimum balance requirements.
- barrier free: Easy access to money is very important. Look for options like online and mobile access, ATM access, and the speed of bank-to-bank transfers.
- customer service: If you need help, good customer service is essential. Before opening an account, read reviews on sites like Better Business Bureau and Trustpilot to see what other customers have experienced. Also, check to see if the bank offers multiple ways to get support, including phone, chat, email, and more.
- FDIC or NCUA Insurance: Make sure that any bank or credit union you choose is insured by the FDIC or the National Credit Union Administration (NCUA). In the event of a bank or credit union failure, this insurance means your deposits are protected up to $250,000 per depositor, ownership class and institution.
How to make the most of your savings
Getting a great price is only the first step. If you want to grow your savings even further, consider these tips:
- automation: Many banks allow you to set up automatic monthly transfers from your checking account to your savings account. These transfers help ensure you’re making regular contributions to your savings without breaking the bank.
- To link a checking account: If your bank offers overdraft protection, you can link your savings account to your checking account and use the balance as a cushion to cover transactions that could cause you to lose money. Keep in mind that some financial institutions may still charge an overdraft protection fee, but it’s usually much lower than the overdraft or insufficient funds fee.
- To open multiple accounts: If you are saving for multiple goals at the same time, you may need to open a separate savings account for each goal. Some savings accounts even allow you to create “sub-accounts” to organize your savings into different buckets. Whether it’s vacations, an emergency fund, or college tuition, keeping your savings separate can help you better track your progress.
- Using the budget app: To maximize the interest you earn in a high-yield savings account, make sure you put as much money away as possible. Budgeting apps can help you find room in your budget and increase your monthly savings.
frequently asked questions
How Often Do Savings Accounts Pay Interest?
While compounding frequency varies by bank, savings account interest is typically compounded daily and credited to your account monthly.
What is the difference between compound interest and simple interest?
Simple interest is calculated only on the original principal amount you deposit. Compound interest, on the other hand, is calculated based on the initial principal and the accrued interest over the previous period.
How do banks calculate interest on savings accounts?
Banks use simple or compound interest formulas to calculate interest on savings accounts.
Simple interest formula: Principal x Interest x Term
Compound interest formula: A = P(1 + r/n)Ent
- A: Accrual amount (principal + interest)
- Telephone: main
- : speed
- Number: Number of compounding periods per unit of time
- time: time in decimal (for example, 6 months is 0.5 years)
How Much Interest Can a $10,000 Savings Account Earn in a Year?
The interest earned on $10,000 in one year depends on the annual rate of return and the frequency of compounding. For example, an annual interest rate of 4% compounded daily would result in annual interest income of $408.08. You can explore your earning potential by browsing the best high-yield savings account rates.
How Often Do Banks Put Interest Rates Into Savings Accounts?
Interest earned on a savings account is typically credited to your account each month, although compounding rates vary by bank and account.
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