How much will $1000 make in a high yield savings account?
How much interest can you earn on $1,000? If you're able to put away a bigger chunk of money, you'll earn more interest. Save $1,000 for a year at 0.01% APY, and you'll end up with $1,000.10. If you put the same $1,000 in a high-yield savings account that pays 5% APY, you could earn about $50 after a year.
Let's look at how much you could make by depositing $1,000 into accounts with various ranges: After one year with a regular account at 0.43%: $1,004.30. After one year with a high-yield account at 4.50%: $1,045.00. After one year with a high-yield account at 5.00%: $1,050.00.
How much interest will I get on $1,000 a year in a savings account? If your savings account has an interest rate of 1%, you can earn $10 in interest for one year. Reduce that interest rate to the national average of 0.07% and you would see $0.70 in interest for the year.
If you put $1,000 in a high-yield savings account with an APY of 4.50% or higher and leave it for one year, you will earn a minimum of about $45. Currently, you can find many high-yield options with rates between 4.00% and 5.00% and some over 5.00%.
The difference is in the APYs. High-yield savings accounts generally pay a significantly higher return than their traditional counterparts. While traditional savings accounts currently offer an average rate of 0.58%, it's easy to find high-yield accounts with interest rates ranging from 4.25% to 5.20%.
Your money is invested, so the balance can go up and down with regular market activity. High-yield savings accounts, on the other hand, are not tied to the stock market. As such, the risk of losing money is extremely low. Even if your financial institution fails, FDIC insurance can cover a large portion of your losses.
Using an annual compounding interest rate of 5% per year, after one year, your $1,000 would earn $50 in interest, bringing your total balance to $1,050. In the second year, your interest is calculated on the initial principal of $1,000 and the $50 earned in the first year.
Keep in mind, yields vary based on the investment. Calculate the Investment Needed: To earn $1,000 per month, or $12,000 per year, at a 3% yield, you'd need to invest a total of about $400,000.
$3,000 X 12 months = $36,000 per year. $36,000 / 6% dividend yield = $600,000. On the other hand, if you're more risk-averse and prefer a portfolio yielding 2%, you'd need to invest $1.8 million to reach the $3,000 per month target: $3,000 X 12 months = $36,000 per year.
While savings accounts traditionally don't pay much, some online banks offer high-yield savings accounts with interest rates up to 4% APY or more. The top ones pay over 20 times the average national rate. With an initial deposit of $25,000 earning 4% annually, you would make $1,000 in interest within the first month.
Why shouldn't I use a high-yield savings account?
Some disadvantages of a high-yield savings account include few withdrawal options, limitations on how many monthly withdrawals you can make, and no access to a branch network if you need it. But for most people, these aren't major issues.
While you can grow your money daily and take on zero risk with high-yield savings, they are not the best way to grow your wealth long-term. The rate of inflation can be higher than the yield you earn over time, so it's better to not keep piling cash into your savings and instead invest your money.
There's no rule on the exact amount to have in your high-yield savings account. The amount of money you should store in these accounts depends on various factors. However, the general rule of thumb is that you should have liquid access to enough cash to cover between three and six months of your expenses.
Too many people are paid a lot of money to tell investors that yields like that are impossible. But the truth is you can get a 9.5% yield today--and even more. But even at 9.5%, we're talking about a middle-class income of $4,000 per month on an investment of just a touch over $500K.
| Funds | Traditional Savings Account: 0.10% APY | High-Yield Savings Account: 4.5% APY |
|---|---|---|
| Starting balance | $5,000 | $5,000 |
| Interest earned | $5 | $224.90 |
| Balance after a year | $5,005 | $5,224.90 |
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.
Do I have to pay taxes on HYSA? Yes, you have to pay taxes on the interest earned from a savings account. If you earn more than $10 in interest on your savings account, the bank holding your account will send you a Form 1099-T to include in your tax return.
This is why it is important to understand when your credit is going to be pulled and which type of credit pull is being performed. Opening a savings account only has the potential to trigger a soft credit inquiry and it doesn't impact your credit score.
Certificates of Deposit
Like high-yield savings accounts, CDs usually offer substantially higher annual percentage yields (APYs) than traditional savings accounts. As of October 2023, the average CD rates range from 4.60% to 5.55%, according to the Federal Deposit Insurance Corp.
That all said, here's how much a $1,000 CD will make in a year, based on four possible interest rate scenarios: At 6.00%: $60 (for a total of $1,060 total after one year) At 5.75%: $57.50 (for a total of $1,057.50 total after one year) At 5.50%: $55 (for a total of $1,055 total after one year)
How often do high yield savings accounts pay interest?
Interest compounding and APY
Banks can do this daily, monthly, quarterly, semiannually, or annually. The more often interest compounds, the more interest you'll earn. Many top banks offer HYSAs where interest compounds daily.
| Account type | Interest earned after one year |
|---|---|
| Savings Account, 0.01% APY | $1.00 |
| High-Yield Savings Account, 4.50% APY | $450 |
In a market that generates a 2% annual yield, you would need to invest $600,000 up front in order to reliably generate $12,000 per year (or $1,000 per month) in dividend payments.
Given the stock price ($11) and yield (8.19%), you only need to buy $293,040 worth of shares to arrive at $2,000 per month. Assuming your available funds is $41,350, and the stock price and yield remain constant, it will take 24 years to hit the objective.
If you invest $1,000 per month, you'll have $1 million in 25.5 years. Data source: Author's calculations.
