If I were to sit down and rank the best money moves I've made in the last few years, opening a high-yield savings account last year would definitely be near the top. Not only was the account incredibly easy to open, but I've made more than $1,000 on my savings this year so far, thanks to earning a generous APY.
Admittedly, I'm in the process of meeting a big savings goal, so you may not have as much saved cash as I currently do. But even if you have a smaller amount saved, say $5,000, it's still worth your time to move that money into a high-yield savings account. Here's why.
By the numbers: Regular savings account vs. high-yield savings account
Let's say you keep your hypothetical $5,000 in a traditional savings account -- perhaps one that's linked to your checking account. It only earns 0.10% APY, though. At least with a balance of $5,000, you likely aren't charged a monthly maintenance fee -- as I discovered last year, $300 is the minimum required balance on my own traditional savings account to avoid fees.
But even without a maintenance fee, your money is losing spending power in this account. The most recent Consumer Price Index Summary report noted that inflation is currently at 3.7%. But the average APY across all savings accounts is currently just 0.45%, according to the FDIC, and your traditional savings account earns far less than that.
What if you were to move your money to a high-yield savings account paying an APY of 4.5%? Here's what you can expect to earn, interest-wise, over the course of a year in each account (and assuming you don't add any money to your balance):
As you can see, the difference in what you can earn is staggering -- surely an extra $220 could make a difference for your bottom line. And best of all, this money represents passive income, so you don't have to work extra hours to earn it.
Where can you find a high-yield savings account?
So you're not going to make this kind of money with a savings account at your trusty old brick-and-mortar bank. Instead, look to cyberspace for a 21st-century bank! Online banks have a few advantages over their brick-and-mortar counterparts, including offering higher APYs on savings accounts. This is because online banks have fewer overhead costs, since they don't have physical branches to maintain. These banks also have excellent remote customer service (including phone lines, email, and online chat features) and mobile apps.
One word of caution, though: If you need to deposit cash, you may have some difficulty with no physical branch to visit. If you've got an account with a brick-and-mortar bank, you can deposit cash there, then transfer it to your online bank account. Yes, this is an extra little song-and-dance to do, but I think the perks of an online bank are worth it.
It's not enough just to have the right savings account; you also need to put money into it. If you have $5,000 now, that's a great starting point, and your money could grow to become a full emergency fund, fund a dream vacation, or even buy you a home. Here's how to make saving money easier.
Automate it: Here's where I give advice I don't follow myself. Automating my finances makes me nervous, but a lot of people have found success with it. If it's hard to set aside money to save every month, setting up an automatic transfer from checking to savings before you've spent the money you want to save can help.
Set a goal: Give your money a job, and dream about that job. In my case, the big savings goal I have is to buy a home in 2024, so every time I add money to the account, I think about how wonderful it will be to wake up in a house I own. It makes it more fun to save.
Get a side hustle: This is always my go-to advice, because it's easier to increase your income than to cut your spending in a big way. Money you earn from a side hustle isn't already earmarked for bills, so you can save all of it (less taxes, should you find yourself in a freelance situation where you receive a 1099 form).
Having cash savings is an excellent position to be in. Don't lose money to inflation -- move your cash to a high-yield savings account today.
These savings accounts are FDIC insured and could earn you 11x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.
The annual percentage yield (APY) is the interest rate earned on an investment in one year, including compounding interest. A higher APY is better as your return will be higher. You can compare APYs at different financial institutions to ensure you're opening an account with the highest possible return.
means you can earn 10 to 12 times more than the national average rate, which is less than half a percent. $5,000 in one of today's best high-yield savings accounts could earn as much as $136 in just six months—compared to about $11 with an average rate.
4.25% APY: If you invest your $50,000 in a CD or high-yield savings account with a 4.25% interest rate, you will earn $2,125 in interest in one year. 4.5% APY: A 4.5% CD or high-yield savings account will yield $2,250 in interest on your $50,000 investment in one year.
How much interest would you make on a $5,000 CD? We estimate that a $5,000 CD deposit can make roughly $25 to $275 in interest after one year. In comparison, a $10,000 CD deposit makes around $50 to $550 in interest after a year, depending on the bank.
The average money market rate is less than 1 percent. But let's say you put $10,000 in an account that earns a full 1% APY. After a year, your balance would earn 100 bucks. Put that same amount in a money market account with a 4% APY, and it would gain just over $400.
Safety: As noted, most high-yield savings accounts are either FDIC or NCUA insured for up to $250,000. Moreover, as deposit accounts, they're not susceptible to the ebbs and flows of the market, so there's little to no chance you'll lose the money you deposit into one.
By keeping your extra savings in a high-yield savings account, you may be able to earn more interest. If you keep $20,000 in a high-yield savings account for one year at 4.50% APY, you can make $900 from interest. The longer you allow your savings to sit in your account, the more interest you'll earn.
Millionaires Like High-Yield Savings, but Not as Much as Other Accounts. Usually offering significantly more interest than a traditional savings account, high-yield savings accounts have blown up in popularity among everyone, including millionaires.
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
Investing $50,000 in a short-term CD could produce $2,625 annually, but your yield will depend on the term you choose. For perspective, here's how much you could earn from today's top short-term CDs. Data source: CD issuers.
To turn $5,000 into more money, explore various investment avenues like the stock market, real estate or a high-yield savings account for lower-risk growth. Investing in a small business or startup could also provide significant returns if the business is successful.
For reference, here's how much savers can currently expect to make with a $5,000 CD in six months, with three different interest rates: At 5.50%: $135.66 (for a total of $5,135.66 after six months)At 5.25%: $129.57 (for a total of $5,129.57 after six months)
A $500 deposit into a CD with 5.5% APY would only grow to $527.50 over 12 months. But a $1,000 deposit would grow to $1,055, and a $5,000 deposit would increase to $5,275.00. That's almost $300 more earned simply by moving your money out of one account and into another.
As of May 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
That said, here's how much you could expect to make by depositing $20,000 into a one-year CD now, broken down by four readily available interest rates (interest compounding annually): At 6.00%: $1,200 (for a total of $21,200 after one year) At 5.75%: $1,150 (for a total of $21,150 after one year)
How much interest can you earn on $10,000? In a savings account earning 0.01%, your balance after a year would be $10,001. Put that $10,000 in a high-yield savings account that earns 5% APY for the same amount of time, and you'll earn about $500.
You want to know your total interest payment for the entire loan. To start, you'd multiply your principal by your annual interest rate, or $10,000 × 0.05 = $500. Then, you'd multiply this value by the number of years on the loan, or $500 × 5 = $2,500.
Introduction: My name is Twana Towne Ret, I am a famous, talented, joyous, perfect, powerful, inquisitive, lovely person who loves writing and wants to share my knowledge and understanding with you.
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