Here’s what you could make with $20,000 in a high-yield savings account.
Despite the Federal Reserve’s recent interest rate cuts, high-yield savings accounts (HYSAs) are still a good place to park funds you’ll need in the near future. Unlike stocks, which are subject to market fluctuations, or certificates of deposit (CDs), which incur penalties if you withdraw money before maturity, high-yield savings accounts are virtually risk-free and offer higher interest rates. The returns are higher than traditional savings accounts at brick-and-mortar banks.
How much can you earn by nesting in HYSA? Let’s look at the numbers.
If you put $20,000 into HYSA, you could earn over $800 in 12 months.
Even though interest rates are starting to fall, HYSAs still offer solid Annual Percentage Yields (APY) between 4.00% and 5.00% depending on the bank you choose. That means if you invest $10,000, you could earn about $400 per year. So if you pay $20,000, you will earn $800 in 12 months.
The average return for the S&P 500 so far in 2024 is 15.44%, so could do You can get higher returns by investing. But these pesky market fluctuations mean you could lose money in the short term.
Recommended Best High-Yield Savings Accounts for 2024
Capital One 360 performance savings  APY 4.10%
Fee information
See the Capital One website for the most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of September 27, 2024. Rates may change at any time before or after account opening. FDIC member. | APY 4.10%
Fee information
See the Capital One website for the most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of September 27, 2024. Rates may change at any time before or after account opening. | earn the least $0 |
American Express® High Yield Savings  APY 4.10%
Fee information
Annual return rate of 4.10% as of October 5, 2024 FDIC member. | APY 4.10%
Fee information
Annual return rate of 4.10% as of October 5, 2024 | earn the least $0 |
Discover® Online Savings  Member FDIC. | earn the least $0 |
The best place to deposit funds you will soon need is, in most cases, a HYSA. (This means saving for an emergency fund, a down payment on a home if you’re planning to buy a home soon, or potential car repairs.)
Not sure which savings account is right for you? Click here to learn more about the best high-yield savings accounts. –And the APY you can expect.
What about a federal funds rate cut?
If you follow financial news in any way, you’ve probably heard that the Federal Reserve recently cut interest rates. It sounds like a big problem, but the actual percentage is very small. The Federal Reserve lowered the federal funds rate by 0.50 percentage points from 5.33% to 4.83%.
Let’s take a look at what $20,000 looks like in a savings account.
APY | Interest earned in one year on $20,000 |
|---|---|
4.83% | $966 |
5.33% | $1,066 |
Data source: Author’s calculations.
The difference in interest between the new APY and the old APY is $100.
Keep in mind that the interest rates set by the Federal Reserve are higher than what most HYSAs offer. Interest rates tend to offer a few points less interest. The Fed interest rate is generally closer to the interest rate you would expect to pay if you borrow money.
Consider other options to grow your savings faster
High-yield savings accounts are the best place for emergency funds and cash you’ll need over the next two to three years. High interest rates are a nice bonus, but they’re not the best way to get the most out of your savings.
For long-term savings, such as for retirement or for children to go to college in 15 years, it is recommended to open a brokerage account and build a diverse investment portfolio. Diversification reduces risk by spreading risk across several types of investments. If you won’t need the money soon, consider moving some of your savings from your HYSA to an investment account for higher long-term returns.
