This Is How Much Money You Can Make With $5K in a High-Yield Savings Account

Setting aside extra money can be a great way to prepare yourself financially for the unexpected. Some assume that opening a savings account isn't worthwhile because the interest earned is too little. But that's not the case if you open a high-yield savings account.

Current rates for these accounts are competitive due to recent Federal Reserve interest rate hikes. With a deposit of $5,000, you could earn significant extra money, which could help you increase your emergency savings faster. Curious how much you can make? I'll outline how much you can earn with $5,000 in a high-yield savings account below.

You can earn more interest in a high-yield savings account

For savings accounts, banks use an annual percentage rate (APY) to describe the returns you can expect if you keep your money in your bank account for a year.

Many brick-and-mortar banks offer meager rates on their savings accounts. It's not uncommon for a traditional savings account to offer rates as low as 0.01% APY. That means you could be missing out on interest.

A high-yield savings account typically offers a higher APY than a savings account from a traditional brick-and-mortar bank. Many major online banks offer 4.00% APY or higher for their high-yield savings accounts.

So how much will you end up earning with $5,000 in savings? Let's compare the earning potential from both savings accounts to illustrate the benefit of keeping your extra money in a savings account with a higher interest rate.

How much interest you can earn with $5,000 in savings

You can calculate how much interest you can earn by taking your initial deposit amount and multiplying it by the APY. This will show you how much interest you'll earn if you keep the money in your account for a year.

For my calculations below, I went with a 0.01% APY for a standard savings account and a 4.40% APY rate for a high-yield savings account. The accounts on our best high-yield savings accounts list have APYs ranging from 4.00% APY to 4.95% -- I settled somewhere in the middle.

The calculations below assume an initial $5,000 deposit with no additional deposits made:

As you can see, that's more than $200 earned in only a year on the high-yield account, compared to only $0.50 earned in a year on the traditional savings account. If you're not yet using a high-yield savings account, you may want to consider opening one so you don't miss out on the chance to earn free money without doing any extra work.

The power of compound interest

When you have a savings account, you'll earn compound interest, which is interest that you earn on interest. The longer you keep your money in your savings account, the more you'll earn.

To illustrate how much interest you can earn, here's how much money you'll make if you keep your initial $5,000 deposit in a high-yield savings account anywhere from one to five years. Again, this is assuming you make no additional contributions beyond your initial deposit.

Here's a breakdown:

Don't miss out on the opportunity to earn interest

If you've been saving up for an expensive purchase, emergencies, or any other reason, keep your extra cash in a bank account that earns interest. Before moving your money from your checking account to a savings account, compare current savings account APYs. Opening a high-yield savings account could help you boost your bank account balance faster. For additional money management tips, review our personal finance resources.