How much money would you make if you invested $5,000 in a high-yield savings account?
Want to increase your savings? Now is the best time to focus on your personal finance goals thanks to the availability of high-yield savings accounts. Let’s take a look at how much money you could earn in interest on a $5,000 savings balance, and what features you should target if you need a new place to keep your cash safe and grow.
The keyword for finding good deposits is ‘high rate of return’
“A savings account is a savings account,” you might scoff. But I heard it here first. Not all savings accounts are created equal. I have two savings accounts these days, and the difference in APY (annual percentage yield, or how much you can earn in a year) between them is noticeable.
Savings accounts at large national banks are only paying 0.01% APY, while savings accounts at online-only banks are currently paying 4.20% APY. To make matters worse, the big bank accounts charge me a monthly maintenance fee when my account balance falls below $300. The FDIC tracks average interest rates on consumer bank accounts, and as of this writing, the average APY for all savings accounts is 0.46%.
Let’s break down the numbers
Let’s say you have $5,000 ready to plug into a savings account. If I choose a big bank savings account, a high-yield account with the same interest rate as mine, or an account that currently pays the national average, what will my balance be like after one year?
starting balance | APY | Interest earned in one year | ending balance |
|---|---|---|---|
$5,000 | 0.01% | $0.50 | $5,000.50 |
$5,000 | 0.46% | $23 | $5,023.00 |
$5,000 | 4.20% | $210 | $5,210.00 |
Data source: Author’s calculations.
If we go by interest income alone, we have a clear winner here. And let me point out that 4.20% is actually less than you could earn in a savings account. As of this writing, the highest APY on The Motley Fool Ascent’s list of the best high-yield savings accounts is 5.36%. If you put $5,000 in your account, you could earn $268 a year.
However, it’s important to remember that interest rates on savings accounts are variable, meaning they will fluctuate based on larger market conditions. My account earning 4.20% was actually earning 4.35% just a few months ago. So keep this volatility in mind and take advantage of the highest APY possible. When the Federal Reserve cuts the federal funds rate later this year, as expected, interest rates on consumer bank accounts will also fall (although the two rates are not directly linked, they tend to move together).
What else should you look for?
As we’ve already seen, it’s worth investing time in finding a savings account with a high APY. These days, 4-5% options are pretty widely available. But price isn’t the only consideration! Other things to look for include:
FDIC insurance
Don’t keep your money in an uninsured bank or credit union. For banks, they must be FDIC insured. For credit unions, the equivalent agency is NCUA. Each protects up to $250,000 per depositor, per account ownership category, and per bank in the event of a bank failure.
accessibility
What is the biggest disadvantage of online banks? You have to use another bank to deposit cash and then transfer the cash. It’s not ideal. Fortunately, many online banks have robust ATM networks, so you can link your checking account to your savings, transfer cash, and then use the ATM to access your cash. Yes, it requires an extra step, but the higher APY makes it worth it.
Fee (or ideally no fee)
One of the biggest advantages of online banking is that there are no fees, such as monthly maintenance fees. It is now 2024. Do you really have to pay to keep your money in the bank? No, it doesn’t. So check the fee schedule for the account you’re considering.
Full-featured mobile app
One of the best features of my online bank is its mobile app. It’s easy to use, allows you to separate your money into subaccounts so you can save for different goals, and shows charts that track your savings and interest over time. It’s a good idea to find a bank that offers a great mobile app.
customer service
If you like going to a bank branch in person and talking to a teller, banking online will be of great help to you. Fortunately, many of them offer 24/7 customer service via chat or phone. Before opening an account with a bank, find out if customer service is available.
Right now, you can earn real interest on the money you save. If you want to get involved, join the high-yield savings account trend today.
This savings account is FDIC insured and can earn 11 times the bank’s earnings.
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