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If your money is sitting in a traditional savings account, you could be missing out on potential interest earnings. The current national average interest rate on traditional savings accounts is just 0.38%. But if you put your money into a high-yield savings account, it's still easily accessible while earning up to 4.00% interest or more. Plus, high-yield savings accounts benefit from compound interest, helping to maximize the amount that you make off your money.
High-yield savings accounts are a simple way to put your money to work without extra risk. If you have your funds in a traditional savings account right now, you could be leaving money on the table. We'll break down just what $50,000 could earn you in a high-yield savings account in a year, how interest rates may help your money grow, and how to find the account that's best for you.
See which high-yield savings accounts are paying up to 4.00% APY right now.
What is a high-yield savings account?
Online banks frequently offer high-yield savings accounts. Since these online banks have lower overhead costs than traditional brick-and-mortar banks, they're able to offer perks like higher interest rates. Interest rates for traditional savings accounts currently average about 0.38%, while interest rates of 4.00% are common in high-yield savings accounts.
Most high-yield savings accounts are designed to allow you to make frequent deposits, but there may be limits on how often you may make withdrawals. Some accounts include perks like no minimum deposit requirements or the elimination of common banking fees, which may mean you receive even greater value from the account.
How interest works with a high-yield savings account
The interest your money earns in a high-yield savings account compounds, meaning you'll start earning interest on your interest. Many accounts feature interest that compounds monthly, so the interest you earn after a month is added to your account's principal, and then you earn interest on that larger principal during the next month. Compound interest helps accelerate the growth of your money.
Compare today's top-paying high-yield savings accounts side by side.
How high-yield savings accounts may help beat inflation
If your money is in a traditional savings account earning 0.38% interest, you're losing some purchasing power as your money sits. In June, the Consumer Price Index reached 3.5% on an annual basis, so money in a traditional savings account earning less than that in interest is essentially losing some of its value.
A high-yield savings account may keep your money safe while also keeping up or even beating the inflation rate. For example, a high-yield account paying 4.00% interest may outpace the current inflation rate, preserving the purchasing power of your money.
Potential drawbacks to high-yield savings accounts
There are many benefits to high-yield savings accounts, but it's important to be aware of their drawbacks, too.
Some banks might require you to open a high-yield savings account as part of a bundle with other services, like a checking account or a certificate of deposit account. The number of withdrawals you're allowed to make from your high-yield savings account may be limited, and the interest rate on a high-yield savings account is variable, meaning it may change anytime.
Typically, you must pay taxes on the interest that your money earns while in a high-yield savings account, so be sure to account for this expense when paying your taxes.
How much you might earn on $50,000
Let's say that you deposit $50,000 into a high-yield savings account consistently earning 4.00% interest over the course of a year. You make no additional contributions and let that money sit without making any withdrawals.
If interest compounded daily, after three months, your money would earn $502.48 in interest. After six months, that interest would have grown to $1,010.01, and by nine months, it would reach $1,522.64. After a full year, you would have earned $2,040.42 in interest, bringing your total balance to $52,040.42.
See how much you could earn on your own balance with a top high-yield savings account.
Interest rate projections
Interest rates on high-yield savings accounts are variable, and the economy might cause those rates to increase or decrease. Some analysts believe the Fed could raise rates if inflation pressures persist. If the Fed does implement a rate hike, banks are likely to also increase their interest rates, meaning a high-yield savings account might pay higher interest.
There are several factors to watch that are affecting the Fed's position toward interest rates. In July, President Trump announced he would reinstate a blockade of Iranian ports, and a jump in oil prices followed. If oil prices continue to increase and inflation grows, the Fed might raise interest rates.
How to choose the right high-yield savings account
Just as you would shop around for a mortgage or credit card, it's important to choose from the best high-yield savings accounts. Everything from interest rates to minimum required deposits to fees varies depending on the bank and the account, so take some time to find the account that's the best fit for your needs and your savings goals.
To start, compare the annual percentage yield (APY), showing the effect of compound interest, and look for the highest option available to help you earn the most money on your cash. At the same time, consider whether the account has any fees, like maintenance fees, that might eat into your savings. Look out for other potential catches, like minimum balance requirements.
Consider how easily you may be able to access your money. Think about how you'll be able to withdraw your money when you need it, and review any limits on withdrawal frequency.
Before you sign up for an account, verify that the account and the full balance of your money are insured.
Get started today by comparing the top high-yield savings accounts here.
Bottom line
A high-yield savings account may help you make the most of your money while keeping it easily accessible in case you need it. It's often an ideal choice for building up your savings account or leveraging idle cash without the risk that might come with investing your money.
Just be sure you do your research in finding the account that's right for your needs and goals. The right high-yield savings account may be a valuable tool in maximizing your money.
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