If you can work it into your budget, saving money is the key to setting yourself up for a solid financial future. The money you set aside now will become the nest egg you use later in life, whether it’s for an emergency, a major purchase or to live comfortably in retirement.
Just as important as saving money, though, is where you keep the money you save. One solid option is to use a savings account — but not all savings accounts are created equal. If you’re using a traditional savings account rather than one of the high-yield variety, you could be missing out on significant interest earnings.
High-yield savings vs. regular savings account: How much more could you be earning?
Some people with a traditional savings account may not be aware there is a better option, says Nick Covyeau, a certified financial planner at Swell Financial. And, that’s especially true for older people.
“A lot of them still have the standard bank account — checking and savings account — that they opened 40 years ago,” he says. “There’s a lot of better options out there.”
The average rate for a regular savings account is 0.46% currently. If you open a high-yield savings account, though, you can earn significantly more – as rates of up to 5.50% are currently available.
If you have money sitting in a traditional savings account, here’s how much more you could earn in interest if you moved it to a high-yield account. Keep in mind that savings accounts have variable interest rates, which could change during the year, so these numbers are approximations of what your actual earnings would be.
Depositing $1,000
If you keep $1,000 in a traditional savings account offering a yield of 0.46% for one year, you would earn $4.60 in interest, for a total account value of $1,004.60.
On the other hand, if you move that $1,000 into a high-yield savings account offering a 5.50% APY, you would earn $55 in interest over the course of one year for a total balance of $1,055. That is a difference of $50.40 for the year.
Depositing $5,000
Now let’s say you deposit $5,000 in a traditional savings account with a 0.46% interest rate. In that case, you would earn $23.00 in interest over a year, giving you a total of $5,023.00. If you put that money in a high-yield account with an interest rate of 5.50%, your interest payments would equal $275 for the year, for a total balance of $5,275.
In this case, moving your money from a traditional savings account to a high-yield savings account results in an additional $252 in interest in just one year.
Depositing $10,000
Depositing $10,000 into a traditional savings account with a yield of 0.46% results in $46 in interest for the year, meaning your account balance would be $10,046. With a high-yield account offering 5.50% in interest, you’d earn $550 in interest in one year for a total balance of $10,550.
So, moving $10,000 from a traditional savings account to a high-yield account will result in $504 more in interest in just one year.
Depositing $20,000
If you have $20,000 in a regular savings account with a rate of 0.46% right now, in one year you would earn $92 in interest and have $20,092 in your account. Moving that money to a high-yield account with a 5.50% interest rate would result in $1,100 in interest and a balance of $21,100 in total.
By moving $20,000 from your traditional savings account and putting it in a high-yield account, you would earn an additional $1,008 in interest over the year.
The bottom line
If you currently have money sitting in a regular savings account, you are missing out on the potential to earn big interest returns. Moving all of your savings from that traditional account to a high-yield savings account could earn you hundreds or even thousands of dollars in increased interest payments, depending on the starting value of your account — so it’s worth considering today for most savers.
