How much does a high-yield savings account actually earn?
$5,000 at 4.25% APY earns $212 in a year, $17.71 a month, against $0.50 at the 0.01% a big bank pays. Free money, and small money: after three years of adding $200 a month the balance is $13,321, and $12,200 of that is deposits.
The example
The same deposit in two accounts, both insured, both a phone tap from checking. The only difference is the rate.
| High-yield | Typical big bank | |
|---|---|---|
| Opening deposit | $5,000 | $5,000 |
| APY | 4.25% | 0.01% |
| Compounding | Monthly | Monthly |
What it earns
| High-yield | Typical big bank | |
|---|---|---|
| Interest, one year, no additions | $212 | $0.50 |
| Per month, first year | $17.71 | $0.04 |
| Interest, three years, no additions | $665 | $1.50 |
| Interest, three years, adding $200 a month | $1,121 | $2.55 |
| Balance after three years with $200 a month | $13,321 | $12,203 |
| Of which your own deposits | $12,200 | $12,200 |
| One year if the rate drops to 3% | $150 | - |
Read that table twice
The first row is the whole argument for moving the money: $212 against $0.50, for one form and a transfer. Over three years it is $665 against $1.50. There is no version of this where the big-bank account is the right place for a $5,000 cushion.
The last rows are the argument against expecting more. With $200 a month added for three years the balance reaches $13,321, and $12,200 of it, about 92%, is money you put in. The interest is $1,121. That is real and it is not an income; $17.71 a month in year one is a streaming subscription, not a raise.
The rate is also not yours to keep. It is variable, and a drop to 3% turns the first year’s $212 into $150. The deposits are the part of this that compounds; the rate is the part that gets written to you in an email.
The honest recommendation
- Move the emergency fund there today. $212 a year for nothing is the cleanest trade in personal finance. Same insurance, same access, one transfer.
- Then stop thinking about the rate and think about the deposit. $200 a month over three years adds $7,200 to the balance; the best rate on the page adds $1,121. Chasing a quarter-point at another bank is not worth an afternoon.
- Do not keep money there that has a job elsewhere. A card at 24% is costing five times what this account earns. Beyond the cushion, the balance belongs on the card.
- Do not treat the interest as a plan. $17.71 a month does not cover a premium, a tire, or a bad month. The account is where the cushion lives, not what builds it.
Where these numbers came from
Monthly compounding at the stated APY: the monthly rate is (1 + APY) to the power 1/12, minus one, applied to the balance each month, with the $200 deposit added at the end of each month where stated. Rounded to the nearest dollar, or to cents where the figure is under a dollar. Rates are examples; the high-yield rate is typical of the better online accounts and the big-bank rate is typical of the worst.
Forgenta keeps a floor under the checking account and forecasts the balance forward month by month, so the cushion you move to a high-yield account is sized to the bills in front of you rather than to a guess.