Interest rates on savings accounts are higher than they’ve been since the 1980s when they reached a peak of 8%. This was decades before online banks with reduced costs and no fees were available. It’s fun to imagine how much interest your savings could have earned back then in a neobank.
Today, the average savings account provides an interest rate of just 0.40% APY in June 2023, according to Business Insider. That’s because big banks like Chase, offering just on balances in most of their savings accounts, drive the national average down.
Online banks and local credit unions offer APYs much higher than the national average, with Digital Federal Credit Union offering a high APY on balances up to $1,000 and 0.15% on balances over $1,000.
Should You Keep $20,000 in Your Savings Account?
With this in mind, the amount of interest you can earn if you keep $20,000 in a savings account for a year varies dramatically. It’s a good argument for keeping some of your money in a high-yield online savings account to earn at least 4% or even more.
Compare your interest earnings on $10,000 and $20,000 at various interest rates. When you compare bank accounts and their interest rates, you’ll want to keep in mind monthly fees, penalties and other fees that could reduce your earnings, as well. You’ll also want to know whether interest is compounded daily, monthly or annually.
The GOBankingRates savings calculator below shows what a difference the right savings account can make to your financial future.
How Much Interest Does $10,000 Earn in a Year?
At today’s interest rates, $10,000 in the bank can earn anywhere from a paltry $1 at Chase up to $617 at DFCU, currently offering the highest interest rates on a savings account anywhere in the country.
See the chart below for common savings interest rates and how much you can expect to earn if you keep $10,000 in a savings account for one year.
Note that the earnings is just an example and does not reflect actual earnings at DFCU, since savers only receive APY on the first $1,500 of their balance.
How Much Interest Does $20,000 Earn in a Year?
You can already see a big difference between $1 and $617. But if you double your initial savings amount, the interest rate matters even more.
How Much Interest Will $200,000 Earn in a Year?
Take the same interest rates and see how much you will earn with $200,000 in a bank account.
You can see that with a bare minimum APY of .01%, you’ll barely earn pocket change even on a high balance like $200,000. Even at 1% interest, you’ll have an extra $2,000 in the bank at the end of a year. Find an online account with 5% interest, and you’ll put $10,000 in your pocket. You can reinvest that money into investments with an even higher yield, like dividend-earning stocks, ETFs, or use it help fund a 401(k).
What Is 5% Interest on $20,000?
Although the national average interest rate hovers around 0.40%, many online banks offer 5% or higher interest on your savings with no monthly fees and low minimum deposit requirements. You can see that 5% interest on a $20,000 deposit yields $1,000 after one year.
Where can you find savings accounts offering 5% interest or higher? There are plenty of choices if you avoid the big banks and turn to online neobanks or even small, local brick-and-mortar banks and credit unions.
Banks That Offer 5% Interest Right Now
Many banks offer 5% interest right now. Read the fine print before you choose your bank, because some have direct deposit or minimum balance requirements to earn the highest yield. However, if you can easily meet these requirements, you’ll see your savings grow quickly.
Varo Bank is a neobank with no fees and tons of perks. Earn APY on balances up to $5,000 when you have monthly direct deposits totaling $1,000 and end the month with a positive balance in your Varo Bank Account and Varo Savings. Otherwise, you’ll earn . Balances over $5,000 also earn .
Centier Bank Connect Savings
Centier Bank may be a surprising choice for a high interest rate since it is a brick-and-mortar bank with a 125-year history. You can earn up to APY on your Connect Savings balance if you make 50 or more qualified debit card transactions with your linked Connect Checking account per statement cycle. If you make 18 to 49 debit transactions, you’ll earn APY. Fewer than 18 transactions earns a APY, which is still higher than some larger banks.
The bank you choose for your savings account can make a huge difference in your financial future. With interest rates the highest they’ve been since the 80s, your money will almost keep pace with inflation in a high-yield savings account.
The Fed is working to reduce inflation below its current 7.4% rate. But a savings account at 5% growth is still more stable than stocks or other investments in the short term and a wise investment for short-term savings.
If you are concerned about job loss with an impending recession, tucking away three to six months of living expenses in a high-yield savings account can help you feel better about your finances. A savings account provides a quick and easy way to save money for emergencies and maintain easy access to your funds.
The information related to Chase Savings℠ was collected by GOBankingRates and has not been reviewed or provided by the issuer of this product/card. Product details may vary. Please see the issuer’s website for current information. GOBankingRates does not receive commission for this product.
Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of June 16, 2023.
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- Forbes. 2023. "History of Savings Account Interest Rates."
- Business Insider. 2023. "What is the average interest rate for savings accounts?"
- Centier Bank. "Open a Centier Bank Savings Account Online Today 2023."
- OEDCD. "Consumer Prices, OECD - Updated: 6 June 2023."