Having extra money in a savings account can make receiving an unexpected bill less stressful. Even $1,000 saved can be a win for your personal finances. If you're saving up, keep your extra cash in a high-yield savings account so you don't miss out on the chance to earn interest. Interest can help you reach your savings goals sooner. Discover how much money you can earn by keeping $1,000 in a high-yield savings account.
Boost your bank account balance by earning interest
Since most checking accounts don't earn interest, keeping your savings there is not ideal. If you have a savings account, review the annual percentage yield (APY). The APY is how much interest you can expect to earn by keeping your money in your savings account for a year.
Many traditional banks offer meager APYs. APYs as low as 0.01% are common. However, you can boost the interest that you earn by opening a high-yield savings account. Many of the best online banks are offering APYs of 4.00% or more. If your savings account isn't offering a competitive interest rate, you may want to consider opening a new account elsewhere.
How much interest can you earn with $1,000 in savings?
Did you know the average American has just $4,500 in their savings account, and a significant percentage of us has less than that? Research from The Ascent shows that 35% of Americans have $1,000 or less saved. The good news is that even with $1,000, you can earn interest.
You can calculate just how much interest by taking your initial $1,000 deposit amount and multiplying it by the APY. This will show you how much interest you'll earn if you keep the money in your savings account for one year.
Let's look at why it pays to keep your extra cash in a high-yield savings account instead of a savings account offering only 0.01% APY. For my calculations, I settled on a 0.01% APY for a standard savings account and a 4.40% APY rate for a high-yield savings account. The best high-yield savings accounts have APYs ranging from 4.00% APY to 4.95%.
The calculations below assume an initial $1,000 deposit with no additional deposits made:
The longer your money sits, the more you earn
Savings accounts earn compound interest -- interest on the interest you've already earned! You can continue earning more money by keeping your money in the bank. How much can you make over time with $1,000 in the bank? Let's find out.
My calculators assume you make no additional contributions beyond your initial $1,000 deposit. But you can earn even more if you make more deposits.
Here's a breakdown:
Earning $240 in five years without doing extra work sounds like a win to me.
Pay attention to APYs
If you keep your extra savings in a savings account, check the APY. Moving your money into a high-yield savings account with a generous APY can allow you to boost your account balance faster. As your money sits, it will earn interest -- even if you don't make additional deposits. You can earn even more by making regular contributions to your savings account. No matter how much you have saved, any extra interest earned is a win for your wallet.
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.
