70% of Americans Don’t Have a High-Yield Savings Account — Here’s How Much Interest You’d Earn on $500 if You Did
Written by
Seychelle Thomas
Edited by
Katie Wudel
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As of July 27, the Fed raised rates again — its 11th consecutive rate increase since March 2022.
While this might negatively impact rates on new debts like mortgages or car loans, it also drives up the annual percentage yield (APY) you could receive on a high-yield savings account or money market account.
Why Aren’t People Switching?
Although there’s potential to cash in on higher interest rates, many Americans still aren’t switching their deposit balances to high-yield options.
A 2023 study from Santander found that only 32% of people moved their money to a high-yield savings account for the increase in rates. Several notable reasons behind the lack of movement include:
- 73% of Americans noted being unable to save as much due to inflation. That figure is higher than 2023’s first-quarter result of 67%.
- 30% of respondents cited a lack of awareness around increased rates in an Experian survey.
- Experian also found that inconvenience (17%) and busyness (12%) were factors.
- Priorities are different. When respondents were asked what they would do with a $50,000 inheritance, 45% told Santander they’d use the money to pay off or pay down debt. Only 19% would choose to save the money in a high-yield interest-bearing account.
How Much Are You Leaving on the Table?
If you fall in with the majority, you could be leaving money on the table by stashing your funds in a standard savings account.
To truly understand how much you could miss out on, let’s see how much a savings balance of $500 could earn. In a standard savings account, you won’t earn much in interest. The current average APY on these types of accounts is 0.42%. With interest that compounds monthly, you’d earn a total of about two dollars after a year of letting your balance accrue interest with no additional contributions.
Most high-yield savings accounts require a minimum balance to take advantage of their advertised rates. Some of the highest offers are available to consumers with five to six figures to deposit. If you don’t have a large savings amount to capitalize on high rates, then let’s take a look at how much you could earn by saving just $500 in a high-interest savings account where interest is compounded daily, such as with Bask Bank, whose interest savings account can be explored here.
Over a year of accumulating interest at around 5.00% APY, your $500 balance would earn about $25. For savers with lower deposit amounts, the switch likely isn’t worth it. However, the more you plan to save, the more you could earn. If you planned to transfer $50,000 to a high-yield savings account at the same APY, then you’d earn about $2,500 over a year.
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