The right savings account is a must to get the most from your money.
Since last year, there have been several interest rate hikes. While savings accounts previously offered barely anything, that's no longer the case. Many of the best savings accounts now have APYs from about 3.5% to over 5%.
However, not all banks offer anywhere near that much. For example, if you stick with a big bank, odds are you'll earn a significantly lower interest rate. Some of them offer as little as 0.01%.
It's a smart move to earn as much interest as possible, but it's even more important when you have a large amount of savings. To demonstrate that, let's look at how much $20,000 in savings will grow, depending on the account you choose.
How much $20,000 earns you in a savings account
Savings account APYs (annual percentage yields) vary quite a bit. The table below shows how much you'd earn in one year depending on your account's APY. It compares APYs of 0.01%, since that's what some big banks offer, the current national average of 0.35%, and a few rates available right now through high-yield savings accounts.
| APY | Interest earned in one year |
| 0.01% | $2 |
| 0.35% | $70 |
| 3.50% | $700 |
| 4.00% | $800 |
| 4.50% | $900 |
| 4.75% | $950 |
| 5.00% | $1000 |
Data source: Author's calculations.
There's no arguing that you lose a lot of money if you keep your savings in the wrong place. You're looking at a difference of several 1,000s between the top savings accounts and those with a subpar to even an average APY.
Why do savings account rates differ so much?
The primary reason why some savings accounts have much higher interest rates is because they're offered by online banks. These banks usually don't have branches you can visit, which saves them money on overhead costs. Banking locations and the staff to run them aren't cheap. Because online banks save in this area, they can pay more interest than brick-and-mortar banks.
Online banks also need to offer those competitive rates to attract and retain customers. Big banks already have established brands and massive customer bases, so they don't need to compete on interest.
This means in-person banking normally isn't an option if you want a high interest rate. Some high-yield savings accounts also don't offer a debit card. You may need to transfer your money to a checking account first to withdraw it. While this isn't always convenient, it's not a huge drawback. After all, savings accounts are designed for storing your savings, not moving money back and forth.
How to maximize your savings
If you don't have a high-yield savings account already, it makes sense to open one. You'll earn much more interest, and there's no downside. Online banks are just as safe, as they offer the same FDIC insurance as the big banks. That covers up to $250,000 per account in the event of bank failure.
There are plenty of high-yield accounts to choose from. While APY is one of the most important features, also look at minimum deposit requirements. Not all accounts have these, but some require a minimum balance to earn the APY. Check for monthly maintenance fees, as well. Most of the top online banks don't charge these, but it's still good to double check.
Once you've found an account you like, you can sign up online. You'll need to provide your address, Social Security number, and possibly a scan of your government-issued ID. The process of opening a bank account online is usually quick and easy. After that, transfer over your savings to start earning interest.
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.
FAQs
How much $20,000 earns you in a savings account
| APY | Interest earned in one year |
|---|
| 3.50% | $700 |
| 4.00% | $800 |
| 4.50% | $900 |
| 4.75% | $950 |
3 more rowsMar 31, 2023
Having $20,000 in a savings account is a good starting point if you want to create a sizable emergency fund. When the occasional rainy day comes along, you'll be financially prepared for it. Of course, $20,000 may only go so far if you find yourself in an extreme situation.
What happens if you put 20k in a high-yield savings account? ›
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.
How do you calculate how much a savings account will earn? ›
How do you calculate interest on a savings account? You can calculate the amount of simple interest your account earns by multiplying the account balance by the interest rate for a select time period. To calculate compound interest, you'll need to add up interest earned over time.
Do you pay taxes on a high-yield savings account? ›
The IRS treats interest earned on a savings account as earned income, meaning it can be taxed. So, if you received $125 in interest on a high-yield savings account in 2023, you're required to pay taxes on that interest when you file your federal tax return for the 2023 tax year.
How much interest will $30,000 earn in a savings account? ›
$30,000 in savings accumulates this much interest
| Account type | Interest earned after one year |
|---|
| Savings Account, 0.01% APY | $3.00 |
| High-Yield Savings Account, 4.50% APY | $1,350 |
Aug 28, 2023
Other answers revealed that 15 percent had between $1,000 to $5,000, 10 percent with savings of $5,000 to $10,000, 13 percent boasted $10,000 to $20,000 of cash in their bank accounts while 20 percent had more than $20,000.
How much money should I keep in my checking account? ›
A common rule of thumb for how much to keep in checking is one to two months' worth of expenses. If your monthly expenses are $4,000, for instance, you'd want to keep $8,000 in checking. Keeping one to two months' of expenses in checking can help you to stay ahead of monthly bills.
Is 20 thousand dollars a lot of money? ›
Meanwhile, you might have a fairly large savings balance to the tune of $20,000. That's definitely a lot of money. And in some cases, that might constitute a really robust emergency fund. But in some situations, a $20,000 emergency fund might also leave you short.
Can you ever lose your money with high-yield savings account? ›
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.
It's possible, but it isn't realistic for everyone. Living off of interest relies on having a large enough balance invested that your regular interest earnings meet your salary needs. Rest assured that you don't need to earn a million dollar paycheck to reach your goal.
What is the downside of a high-yield savings account? ›
Some disadvantages of a high-yield savings account include few withdrawal options, limitations on how many monthly withdrawals you can make, and no access to a branch network if you need it. But for most people, these aren't major issues.
How much interest does $20,000 earn in a year? ›
How much interest does $20,000 per year in a savings account? If you put your money in a traditional bank that earns 0.01%, you'd have $20,002.00 by the end of the year. In a high-yield savings account that earns 0.60%, you'd have $20,120.
How much interest will $10,000 earn in a savings account? ›
Here's what your returns on a $10,000 balance could look like
| 0.46% APY | 5.30% APY |
|---|
| After 1 Year | $46.00 | $530.00 |
| After 5 Years | $232.13 | $2,946.19 |
| After 10 Years | $469.64 | $6,760.37 |
Dec 30, 2023
To reach $10,000 in one year, you'll need to save $833.33 each month. To break it down even further, you'll need to save $192.31 each week or $27.40 every day. These smaller chunks are much more realistic and simple to comprehend, making it easier to track your progress.
Is 20k a good amount to save? ›
Many experts believe you should have an emergency fund of between three- and six-months' worth of living expenses set aside. Depending on your dependents and typical outgoings, that sum will vary, but if you don't already have an emergency fund in place, this might be the smartest thing to do with £20k.
How much is 5% interest on $20,000? ›
For example, if you take out a five-year loan for $20,000 and the interest rate on the loan is 5 percent, the simple interest formula would be $20,000 x .05 x 5 = $5,000 in interest.
Is 20k in savings enough to move out? ›
In short, no. Having $20k saved up to move out is ideal, it gives you extra cash for deposits and whatever else you might need. However, you cannot intend to live on $20,000. To give you a different idea about how much that is, that averages about $9 an hour, which is hard to live on.
Where should I put my 20k savings? ›
Your platform will give you a number of options and which one works best for you will depend on your circ*mstances.
- A Stocks and Shares ISA. Money invested in an ISA is sheltered from tax while it grows and there will be no tax to pay when you withdraw money either. ...
- A Self Invested Personal Pension. ...
- A Trading Account.
