The amount you earn depends on your balance, the APY rate, and how long the money sits there
A high yield savings account earns money through interest—the bank pays you a percentage of what you deposit. The percentage is called the APY (annual percentage yield). If you have $10,000 in an account earning 4.50% APY, you will earn roughly $450 over one year, assuming the rate stays the same and you do not add or withdraw money.
The real number you earn depends on three things: how much you deposit, what APY the bank offers, and how long your money stays in the account. Banks change their rates frequently—sometimes weekly—so the APY you see today may not be the APY you earn next month. The interest compounds, meaning you earn interest on your interest, but the effect is small in savings accounts and happens monthly or daily depending on the bank.
This section shows you how to calculate what you will earn, what rates look like right now, and why the number you see advertised is not always the number you get.
Key Takeaways
- Your earnings equal your balance multiplied by the APY, divided by 12 for monthly earnings or by 365 for daily earnings.
- High yield savings accounts currently offer between 4.00% and 5.35% APY, but rates change frequently and vary by bank.
- The bank compounds interest daily or monthly, meaning you earn a small amount on the interest you already earned, but this effect is minor in savings accounts.
- If you withdraw money before the end of the year, your earnings shrink proportionally—a $10,000 withdrawal halfway through the year cuts your interest roughly in half.
- APY is not may provide and can drop at any time, so the rate you lock in today may be lower next month.
How to calculate your earnings
The basic formula is: Balance × APY ÷ 12 = monthly interest. If you have $25,000 at 4.75% APY, you earn roughly $99 per month ($25,000 × 0.0475 ÷ 12). Over a full year without deposits or withdrawals, that is about $1,188.
Banks compound interest daily or monthly. Daily compounding means the bank calculates interest on your balance every single day, and that interest gets added to your balance, so the next day you earn interest on a slightly larger amount. Monthly compounding does the same thing once a month. The difference is small—on a $25,000 balance at 4.75% APY, daily compounding earns you roughly $12 more per year than monthly compounding. It matters more on larger balances or higher rates, but it is not the main driver of your earnings.
If you add money during the year, your earnings grow. If you withdraw money, they shrink. A $5,000 deposit halfway through the year earns roughly half a year's interest on that $5,000. A $5,000 withdrawal does the opposite—you lose the interest you would have earned on that money for the rest of the year.
Current rates and where they vary
High yield savings accounts currently range from about 4.00% to 5.35% APY, depending on the bank. Online banks tend to offer higher rates than brick-and-mortar banks because they have lower overhead costs. The highest rates change almost weekly as banks compete for deposits. Some banks offer promotional rates for new customers that are higher than their standard rate, but these usually drop after three to six months.
The difference between a 4.50% account and a 5.25% account is real money. On a $50,000 balance, the gap is roughly $375 per year. On a $100,000 balance, it is $750 per year. Shopping for the highest available rate takes 15 minutes and can be worth hundreds of dollars annually if you have a large balance.
Rates are not locked in. Banks lower rates when the Federal Reserve cuts rates, which happens during economic downturns. Banks raise rates when the Fed raises rates, which happens during inflationary periods. The 5%+ rates available now are historically high and will likely drop if the Fed cuts rates in the coming years. There is no way to lock in a rate for multiple years in a standard high yield savings account.
Why your actual earnings might be lower than the advertised rate
The APY you see advertised assumes your money stays in the account for a full year without deposits or withdrawals. If you withdraw money partway through, your earnings drop proportionally. If you move $20,000 out of a $50,000 balance after six months, you lose the interest you would have earned on that $20,000 for the second half of the year.
Some banks advertise a promotional rate that applies only to new deposits or only for the first few months. Read the terms carefully. A bank might offer 5.35% APY on balances up to $25,000 and 4.85% on anything above that. Your blended rate would be somewhere between the two, depending on how much you have in each tier.
Fees can also reduce your earnings, though most high yield savings accounts charge no monthly fee. Some banks charge a fee if your balance drops below a minimum, or if you make too many transfers out of the account. These fees are rare at online banks but common at traditional banks, so check the fee schedule before opening an account.
How much you need to make the interest worthwhile
There is no minimum balance that makes a high yield savings account "worth it"—any amount earns more than a checking account or a regular savings account. But the dollar amount you earn is small on small balances. A $1,000 balance at 4.75% APY earns about $47.50 per year, or roughly $4 per month. A $5,000 balance earns about $237 per year. A $25,000 balance earns about $1,188 per year.
The real question is not whether the interest is worthwhile, but whether a high yield savings account is the right place for your money. If you need the money within a year or two, a high yield savings account is a safe place to keep it and earn more than a checking account. If you will not need the money for five or ten years, you might earn more in a CD (certificate of deposit) or a money market fund, which offer higher rates for longer time commitments. If you are saving for retirement, a tax-advantaged account like an IRA or 401(k) is usually a better choice.
What happens when rates drop
If the Federal Reserve cuts interest rates, banks will lower the APY on high yield savings accounts. This has happened before—in 2022, rates were near zero, and accounts earned almost nothing. When rates drop, your monthly earnings shrink when ready. A $50,000 balance earning 5.00% APY earns about $208 per month. If the rate drops to 3.00%, that same balance earns about $125 per month—a loss of $83 per month or about $1,000 per year.
You cannot prevent this, but you can prepare for it. If you think rates will drop and you have a large balance, you might move some money into a CD that locks in the current rate for one, two, or three years. CDs pay a fixed rate for a fixed term, so you know exactly what you will earn. The tradeoff is that you cannot withdraw the money without a penalty until the CD matures.
Comparing high yield savings to other options
A high yield savings account is not the only place to earn interest on cash. Here is how it compares to the most common alternatives:
| Account Type | Current Rate Range | When to Use It | Main Drawback |
|---|---|---|---|
| High Yield Savings | 4.00% to 5.35% | Money you might need within a year or two | Rates drop when the Fed cuts rates |
| Certificate of Deposit (CD) | 4.50% to 5.50% | Money you will not need for one to five years | Early withdrawal penalty; money is locked up |
| Money Market Account | 4.00% to 5.25% | Money you need occasional access to | Limited number of withdrawals per month |
| Regular Savings Account | 0.01% to 0.50% | Emergency fund at a brick-and-mortar bank | Earns almost nothing |
If you have money you will not touch for three years, a three-year CD might earn slightly more than a high yield savings account and locks in that rate. If you need to access your money frequently, a high yield savings account is more flexible than a CD. If you want the highest possible rate and do not mind checking rates weekly, a high yield savings account is usually the best choice for short-term cash.
Frequently Asked Questions
How often does the bank add interest to my account?
Most banks compound interest daily, meaning they calculate it every day and add it to your balance monthly. Some banks compound monthly. The difference in earnings is small—usually less than $10 per year on a $25,000 balance. Check your bank's disclosure document to see how often they compound.
Can I lose money in a high yield savings account?
No. Your principal—the money you deposit—is insured by the FDIC up to $250,000 per bank. You cannot lose your deposit. The only risk is that the interest rate drops, so you earn less than you expected. Your balance will never go down unless you withdraw money.
What if I need to withdraw money before the year is over?
You can withdraw money anytime without penalty. Your earnings will be lower because you earned interest only on the money that stayed in the account. If you withdraw half your balance after six months, you lose the interest you would have earned on that half for the second six months.
Is the APY I see advertised may provide?
No. Banks can change the APY at any time, and they usually do when the Federal Reserve changes rates. The rate you see today may be lower next week. Some promotional rates are may provide for a set period—usually three to six months—but standard rates can change without notice.
Should I move money between banks to chase the highest rate?
Only if you have a large balance. Moving $5,000 to earn an extra 0.25% APY gains you about $12.50 per year—probably not worth the effort. Moving $100,000 gains you about $250 per year, which might be worth shopping around for. Check the new bank's fee schedule and make sure it has no monthly fees before you move money.