KEY POINTS
- $20,000 in the lowest-yield savings accounts (0.01% APY) only earn $2 per year.
- The best savings accounts could help $20,000 grow by $1,000 per year (or more).
- Even if the Fed cuts interest rates, the best savings accounts are worth checking out.
You might wonder if it's worth opening a high-yield savings account. How much interest can you really earn? What if the Fed cuts interest rates?
As with most investments, the biggest gains from a high-yield savings account go to the people who start with bigger opening balances. If you have only $100 of savings, you won't get much yield. But if you have a decent-sized emergency savings fund with several months' worth of income in it -- such as $20,000 of cash -- opening one of the best savings accounts starts to become a more profitable choice.
Let's see how much you can earn with $20,000 in a high-yield savings account.
$20,000 in savings: Here's how much you can earn at 5.00% APY
Having $20,000 of cash is a healthy amount of savings. According to recent research from The Motley Fool Ascent, the typical American has only $8,000 in the bank -- that includes checking accounts, savings accounts, and other "transaction accounts."
Our Picks for the Best High-Yield Savings Accounts of 2024
Capital One 360 Performance Savings APY 4.25% Rate infoSee Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY)is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings OnCapital One'sSecure Website. Member FDIC. | APY 4.25% Rate infoSee Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY)is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. | Min. to earn $0 |
CIT Platinum Savings APY 4.85% APY for balances of $5,000 or more Rate info4.85% APY for balances of $5,000 or more; otherwise, 0.25% APY Min. to earn $100 to open account, $5,000 for max APY Open Account for CIT Platinum Savings OnCIT'sSecure Website. Member FDIC. | APY 4.85% APY for balances of $5,000 or more Rate info4.85% APY for balances of $5,000 or more; otherwise, 0.25% APY | Min. to earn $100 to open account, $5,000 for max APY |
American Express® High Yield Savings APY 4.25% Rate info4.25% annual percentage yield as of September 13, 2024 Min. to earn $0 Open Account for American Express® High Yield Savings OnAmerican Express'sSecure Website. Member FDIC. | APY 4.25% Rate info4.25% annual percentage yield as of September 13, 2024 | Min. to earn $0 |
If you have $20,000 that you don't need for monthly bills, putting that cash into a high-yield savings account is a great choice. Right now, the best savings accounts are paying 5.00% APY (or higher). The national average savings account pays only 0.45%, while some of the lowest-yielding banks' savings accounts only offer 0.01% APY.
Here's how much you can earn with $20,000 in one of the best savings accounts compared to these two other lower-yield options.
Time | Lowest-yield account (0.01% APY) | National average savings account (0.45% APY) | Best savings account (5.00% APY) |
---|---|---|---|
6 months | $1 | $44.95 | $493.90 |
1 year | $2 | $90 | $1,000 |
2 years | $4 | $180.41 | $2,050 |
3 years | $6 | $271.22 | $3,152 |
Data source: Author's calculations
A savings balance of $20,000 can start to earn serious interest if you leave it in the bank for a few years. You could be losing thousands of dollars by keeping your savings in the wrong account.
What if the Fed cuts interest rates?
"But wait," you might be thinking, "savings account APYs are not fixed like they are with CDs. Savings account APYs can change at any time. There's no guarantee that you'll get 5% APY from a savings account for one year, let alone three years! And the Fed might be about to cut the federal funds rate, which would likely cause savings account APYs to go down, too!"
That's quite astute and financially savvy of you! Yes, savings account APYs can change. But high-yield savings accounts are still a great place to keep your $20,000 of cash, even if the federal funds rate is lower.
Here are a few (hypothetical) examples of how much you'd earn with $20,000 in a savings account, even after the Fed cuts interest rates.
(For these APYs, we're assuming today's best 5.00% savings account rates minus 0.25%, 0.50%, or 1.00% of possible future Fed rate cuts.)
Time | Account A (after 0.25% of Fed rate cuts)(4.75% APY) | Account B (after 0.50% of Fed rate cuts)(4.50% APY) | Account C (after 1.00% of Fed rate cuts)(4.00% APY) |
---|---|---|---|
6 months | $469.49 | $445.05 | $396.08 |
1 year | $950 | $900 | $800 |
2 years | $1,945.12 | $1,840.50 | $1,632 |
3 years | $2,987.52 | $2,823.32 | $2,497.28 |
Data source: Author's calculations
No one knows if, when, or how much the Fed will cut interest rates. The Fed might only cut the federal funds rate by 0.25% at first. But even if the Fed cuts it by 1.00%, the best savings accounts would still be worth getting. With $20,000 of savings, even if the best savings accounts "only" pay 4.00% APY, you'd still earn $800 in one year -- about $200 less than the best 5% savings accounts are paying today.
Bottom line
$20,000 is a great amount of cash savings -- more than most Americans have. But if you have a healthy balance in your bank account, make sure you're getting the yield that you deserve. The lowest-paying bank accounts might only give you $2 per year for your $20,000 of savings. You could be missing out on hundreds (or thousands) of dollars.
And don't worry about Fed rate cuts. Even if interest rates go down soon, it's still worth getting every possible dollar of yield on your savings. Banks should pay you for your deposits -- don't let your money languish in a zero-interest account.
Two of our top online savings account picks:
Rates as of Sep 13, 2024Ratings Methodology
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Capital One 360 Performance Savings | American Express® High Yield Savings |
Member FDIC. | Member FDIC. |
Rating image, 4.50 out of 5 stars. 4.50/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. | Rating image, 4.00 out of 5 stars. 4.00/5Our ratings are based on a 5 star scale.5 stars equals Best.4 stars equals Excellent.3 stars equals Good.2 stars equals Fair.1 star equals Poor.We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs. |
Open Account OnCapital One'sSecure Website. | Open Account OnAmerican Express'sSecure Website. |
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APY: 4.25% Rate infoSee Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY)is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. | APY: 4.25% Rate info4.25% annual percentage yield as of September 13, 2024 |
Min. to earn APY: $0 | Min. to earn APY: $0 |