Since the Federal Reserve raised the federal funds rate last month, a lot of banks we track daily have raised their rates, too. Here’s a guide to determine if a higher APY is worth the (minor) hassle of switching accounts.
👍 It’s likely worth it if:
You’re earning basically nothing on your savings. Major banks like to pay 0.01% APY, and if that’s what you’re earning, you can do much better. High-yield savings accounts right now are paying closer to 4%.
You’re earning less than 3%. If your savings rate is less than 3% — like if you’re hovering around the national average rate of 0.37% — you’re still missing out.
🤷 It’s a toss-up if:
You’re earning at least 3%. If you’re already getting a good rate, the math gets a bit more fun. And by fun, I mean more personal.
🔢 Here’s an example using our compound interest calculator:
$10,000 at 3% APY will get you $300 in interest in a year.
$10,000 at 4% APY will get you $400.
The difference is $100.
But your interest earnings are taxed. So the difference could be closer to $75, depending on your tax rate. For me, that’s like one mid-range Lego set off my kids’ wish list. What’s $75 worth to you?
To complicate things further, savings account rates are variable and, as banks love to tell you, can change at any time.
I recently did all this comparison math for myself. My current account was earning 3%, and I wanted more runway. I also opened a new account for a bonus. I figured earning hundreds of dollars in bonus money would be a nice boost no matter what APY I had. 🤑
Ready to learn more?
Check out our list of best high-yield savings accounts.
Browse the best bank promotions and bonuses.
Head here for our guide on how to switch banks.
Read a refresher on how to open a new account online.
