It is valuable to have savings. If you have extra cash in an emergency fund, it'll be easier to pay for unanticipated expenses that come your way. The recommended amount to save varies from person to person, as everyone's financial situation differs.
But for many people, $20,000 is a sizable emergency fund goal that will go far. If you have a large chunk of savings set aside, make sure you keep it in a bank account that earns interest.
Curious how much interest you can make off $20,000? Below, I'll explain how much you can earn with this sum by keeping your cash in a high-yield savings account.
Maximize your earnings with a high-yield savings account
Before opening a savings account, check the annual percentage yield (APY). Banks use this to describe the returns an account holder can expect by keeping their cash in a savings account for one year. Many brick-and-mortar banks offer low APYs, so it's common to see rates as low as 0.01% APY. At that meager rate, you won't earn much at all.
Our Picks for the Best High-Yield Savings Accounts of 2024
SoFi Checking and Savings ![This Is How Much Money You Can Make with $20K in a High-Yield Savings Account (1) This Is How Much Money You Can Make with $20K in a High-Yield Savings Account (1)](data:image/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==)
APY up to 4.60% Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet. Open Account for SoFi Checking and Savings Member FDIC. | APY up to 4.60% Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet. | Min. to earn $0 |
Citizens Access® Savings ![This Is How Much Money You Can Make with $20K in a High-Yield Savings Account (2) This Is How Much Money You Can Make with $20K in a High-Yield Savings Account (2)](data:image/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==)
Open Account for Citizens Access® Savings Member FDIC. | | Min. to earn $0.01 |
American Express® High Yield Savings ![This Is How Much Money You Can Make with $20K in a High-Yield Savings Account (3) This Is How Much Money You Can Make with $20K in a High-Yield Savings Account (3)](data:image/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==)
APY 4.25% Rate info4.25% annual percentage yield as of June 1, 2024 Open Account for American Express® High Yield Savings Member FDIC. | APY 4.25% Rate info4.25% annual percentage yield as of June 1, 2024 | Min. to earn $1 |
But if you open a high-yield savings account, you'll likely be offered a much higher APY. Many online banks offer 4.00% APY or higher for these accounts. How much interest will you earn by keeping $20,000 in a high-yield savings account? It could be more than you think.
$20,000 in savings accumulates this much in interest
To determine how much interest you'll earn, multiply your initial deposit ($20,000) by the APY your bank account offers. Doing this will show you how much you'd make if you kept your cash in the bank for one year.
For the following calculations, I went with a 0.01% APY for a standard savings account and a 4.50% APY for a high-yield savings account. The bank accounts on our list of the best high-yield savings accounts have APYs ranging from 4.15% to 5.05% -- I settled somewhere in between.
These calculations assume a $20,000 deposit with no additional deposits made to your account:
Bank account type | Interest earned after one year |
---|
Savings Account, 0.01% APY | $2.00 |
High-Yield Savings Account, 4.50% APY | $900 |
Source: Author's calculations
As you can see, there is a significant difference in earnings. Keeping a large sum of cash like this in a high-yield savings account would be worthwhile if you hope to maximize the interest you earn.
Compound interest is on your side when it comes to savings
The calculations above show how much interest you can earn by keeping $20,000 in the bank for a year. But you can make more money thanks to compound interest, which is interest that you earn on interest. The longer you keep your money in your savings account, the more you earn.
To give you an idea how you can benefit from compound interest when you have a savings account, here's how much money you'll make if you keep $20,000 in a high-yield savings account for anywhere from one to five years. Again, the following calculations assume you make no additional contributions beyond the initial deposit.
Here's a breakdown:
Year | Starting balance | Interest earned | Ending balance |
---|
1 | $20,000 | $900 | $20,900 |
2 | $20,900 | $940.50 | $21,840.50 |
3 | $21,840.50 | $982.82 | $22,823.32 |
4 | $22,823.32 | $1,027.05 | $23,850.37 |
5 | $23,850.37 | $1,073.27 | $24,923.64 |
Source: Author's calculations
That's $4,923.64 -- nearly an additional $5,000 earned in five years, assuming the APY doesn't change. However, APYs can and do change, so your APY likely won't stay at the same rate for five years.
Earn more interest with no extra work
Considering the rates offered, now is an excellent time to open a high-yield savings account. By stashing your cash in a bank account with a higher APY, you can earn more interest without doing any work. Most bank accounts take only a few minutes to open, so it's worth the effort. You can improve your personal finances by boosting your bank account balance with earned interest.
These savings accounts are FDIC insured and could earn you 11x your bank
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.
FAQs
By keeping your extra savings in a high-yield savings account, you may be able to earn more interest. If you keep $20,000 in a high-yield savings account for one year at 4.50% APY, you can make $900 from interest. The longer you allow your savings to sit in your account, the more interest you'll earn.
How much money can you make with a high-yield savings account? ›
Shopping around for a top APY means you can earn 10 to 12 times more than the national average rate, which is less than half a percent. $5,000 in one of today's best high-yield savings accounts could earn as much as $136 in just six months—compared to about $11 with an average rate. Able to save more than that?
How much will $10,000 make in a high-yield savings account? ›
If you have $10,000 to invest, here's what your earnings would be at different interest rates: After one year with a regular account at 0.42%: $10,042.00. After one year with a high-yield account at 4.50%: $10,450.00. After one year with a high-yield account at 5.00%: $10,500.00.
Is $20,000 enough for a savings account? ›
Depositing $20,000 in a savings account is wise when you have a plan for the money, such as a near-term expense or rainy day fund. For long-term goals, like retirement, you might be better served by opening a brokerage account or certificate of deposit (CD).
How much will $30,000 make in a high-yield savings account? ›
If you keep $30,000 in a high-yield savings account for one year at 4.50% APY, you can make $1,350 in interest. The longer you let your extra cash sit in your account, the more interest you'll earn.
What is the best investment to make with $20,000? ›
10 Best strategies to invest $20K
- Max out your retirement accounts. ...
- Invest in an index fund. ...
- Invest with a brokerage account. ...
- Invest with a robo-advisor. ...
- Invest in fine art. ...
- Invest in real estate. ...
- Build a CD ladder. ...
- Fund a college savings account.
Can you ever lose your money with a high-yield savings account? ›
You can't lose your money because, just like your regular checking and savings accounts, the money is insured by the Federal Deposit Insurance Corporation up to $250,000.
What happens if you put 50000 in a high-yield savings account? ›
5% APY: With a 5% CD or high-yield savings account, your $50,000 will accumulate $2,500 in interest in one year. 5.25% APY: A 5.25% CD or high-yield savings account will bring you $2,625 in interest within a year.
Do millionaires use high-yield savings accounts? ›
Millionaires Like High-Yield Savings, but Not as Much as Other Accounts. Usually offering significantly more interest than a traditional savings account, high-yield savings accounts have blown up in popularity among everyone, including millionaires.
Is it smart to keep money in a high-yield savings account? ›
Not the best choice for long-term savings – High-yield savings accounts offer much better interest rates than traditional savings accounts, but often, you won't earn enough over the long-term to account for inflation. Investments may be a better option for a longer-term, greater yield.
Earnings on a $10,000 CD Over Different Terms
Term Length | Average APY | Interest earned on $10,000 at maturity |
---|
1 year | 2.61% | $264.14 |
18 months | 2.22% | $338.29 |
2 years | 2.08% | $424.40 |
3 years | 1.95% | $601.95 |
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Is there a catch to a high-yield savings account? ›
What are the cons of a high-yield savings account? Variable rates. Interest rates on these accounts can and do fluctuate, which means the APY you started with could potentially drop. Keep your eye on such changes and remember that the money is yours; at any time, you can move it to a bank that offers a higher rate.
Why should you deposit $20,000 in a high-yield savings account? ›
Another reason to put your $20,000 into a high-yield savings account is that the account will be secure. Even if your bank fails, savings accounts are insured by the FDIC for up to $250,000 per depositor, per account, so you won't have to worry about losing your money if the worst-case scenario happens.
How many people have $20,000 in savings? ›
Other answers revealed that 15 percent had between $1,000 to $5,000, 10 percent with savings of $5,000 to $10,000, 13 percent boasted $10,000 to $20,000 of cash in their bank accounts while 20 percent had more than $20,000.
How many people have 100k in savings? ›
Most American households have at least $1,000 in checking or savings accounts. But only about 12% have more than $100,000 in checking and savings.
How much is 5% interest on $20,000? ›
For example, if you take out a five-year loan for $20,000 and the interest rate on the loan is 5 percent, the simple interest formula would be $20,000 x .05 x 5 = $5,000 in interest.
Can I lose my money in a high-yield savings account? ›
Like regular savings accounts, high-yield savings accounts at banks protected by the Federal Deposit Insurance Corp. (FDIC) insure bank deposits up to $250,000 per depositor. That means you won't lose your money if the bank suddenly collapses.
How much will $50,000 make in a high-yield savings account? ›
5% APY: With a 5% CD or high-yield savings account, your $50,000 will accumulate $2,500 in interest in one year. 5.25% APY: A 5.25% CD or high-yield savings account will bring you $2,625 in interest within a year.
What is the average return on a high-yield savings account? ›
Our picks at a glance
| APY | Estimated earnings |
---|
TAB Bank High Yield Savings | 5.27% | $527.40 |
Salem Five Direct eOne Savings | 5.01% | $501.12 |
Popular Direct High-yield Savings Account | 5.05% | $505.32 |
First Foundation Online Savings Account | 4.90% | $489.58 |
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