In today’s unique economic climate, in which inflation is still sticky and borrowing costs remain elevated thanks to higher interest rates, there are multiple strategic moves to make to ensure that your money is protected and growing in the right interest-earning account type. But knowing what not to do right now is arguably as important as knowing what to do. All savings accounts aren’t the same, after all, and where you ultimately elect to keep your money can be the difference between earning hundreds and potentially thousands of dollars versus earning just a few cents each month.
Take a traditional savings account as an example. With an average rate of just 0.38% now, savers aren’t simply employing the wrong account type. They’re essentially losing money by keeping their funds there versus a high-yield savings, certificate of deposit (CD) or money market account, all of which have interest rates that are exponentially higher. And a CD, in particular, guarantees a big return thanks to the account’s fixed interest rate. This differential will be stark no matter the amount of money you have saved but it can be especially pronounced for those with larger, five-figure amounts such as $10,000.
To better clarify this differential, it helps to compare the interest-earnings of a $10,000 traditional savings account against the three alternatives outlined above. So, how much interest are you actually losing by keeping $10,000 in a traditional savings account? That’s what we’ll calculate below.
Start earning more interest on your money by opening a high-yield savings account now.
How much interest are you losing by keeping $10,000 in a traditional savings account?
Interest earnings on savings accounts are calculated by using two primary figures: the interest rate tied to the account and the length of time in which it’s maintained. While CDs have fixed rates that make interest earnings simple to calculate with precision, some speculation will be required with high-yield, money market and traditional savings accounts, all of which employ a variable rate.Â
Here’s how much interest the first three can offer savers now, calculated against the top rates available for each, a one-year time frame and the assumption that rates stay the same and that no withdrawals are made:
- $10,000 1-year CD at 4.17%: $417.00
- $10,000 high-yield savings account at 4.10%: $410.00
- $10,000 money market account at 3.80%: $380.00
And here’s what the traditional savings account will earn:
- $10,000 traditional savings account at 0.38%: $38.00
By keeping $10,000 in the latter account type versus the former three, then, you will be losing between $342 and $379 over the next year. And, if rates on the other three rise during this period, this rate differential will grow even wider, though it’s hard to tell by how much since traditional savings accounts also have variable rates that will be responsive to market changes. Still, the difference here is already so considerable that savers will be best served by making a switch right away, allowing them to grow their savings almost immediately.
Compare your CD and high-yield savings account options online to learn more.
The bottom line
By keeping your $10,000 in a traditional savings account versus one of the multiple, more profitable account alternatives available now, you’ll be losing hundreds of dollars per year. Fortunately, this issue is simple to correct immediately as online marketplaces list accounts, banks, rates and terms all in one location, making it easy to get started with a higher-rate alternative now. Just be sure to diligently shop around before committing to a single account type or bank to ensure that you choose the most profitable and appropriate one for your money and goals.
About the Author
