Savings Account Compound Interest Calculator
See how your savings account balance grows through the power of compound interest. Most savings accounts compound interest daily, meaning your earned interest starts earning its own interest every single day. Use this calculator to project your future balance with regular deposits.
- High-yield savings accounts offer 4-5% APY — significantly more than the national average of 0.01% at traditional banks
- Daily compounding maximizes growth — most savings accounts compound interest daily, giving you the highest effective yield
- FDIC insured up to $250,000 — your savings are protected by the federal government, making this a risk-free return
- Perfect for emergency funds — keep 3-6 months of expenses in a high-yield savings account for instant liquidity and steady growth
| Year | Principal | Interest | Balance |
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| Year | Initial | Contributions | Interest | Balance |
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CAGR = (Ending Value / Starting Value)^(1/Years) - 1A = P × e^(r × t)Where e ≈ 2.71828 (Euler's number)
How Savings Accounts Compound Interest
Savings accounts earn compound interest, meaning the interest you earn is added to your balance and then earns interest itself. Most banks compound savings account interest daily, which means your balance grows every single day. The interest is then typically credited to your account monthly.
Here is how it works: if you deposit $10,000 into a savings account with a 4.5% annual interest rate compounded daily, the bank divides the 4.5% rate by 365 to get a daily rate of about 0.01233%. On day one, you earn $1.23 in interest. On day two, you earn interest on $10,001.23. This cycle repeats every day, creating a snowball effect where your money grows faster and faster over time.
The difference between the stated interest rate and the actual yield after compounding is reflected in the APY (Annual Percentage Yield). A 4.5% rate compounded daily produces an APY of approximately 4.603%, meaning you earn slightly more than the stated rate thanks to compounding.
Your deposits are protected by the FDIC up to $250,000 per depositor, per insured bank.
High-Yield vs. Traditional Savings Accounts
Traditional savings accounts at brick-and-mortar banks typically offer rates of 0.01% to 0.10% APY. At these rates, $10,000 earns just $1 to $10 per year — less than inflation erodes from your purchasing power.
High-yield savings accounts (HYSAs) offered primarily by online banks currently pay 4.0% to 5.0% APY. The same $10,000 earns $400 to $500 per year. Online banks can offer higher rates because they have lower overhead costs — no physical branches, fewer staff, and lower real estate expenses.
Both types of accounts are FDIC insured up to $250,000 per depositor, per bank. There is no additional risk in choosing a high-yield online savings account over a traditional one. The only trade-off is that online banks may not offer in-person banking services.
The Consumer Financial Protection Bureau (CFPB) recommends comparing account fees, APY rates, and access features when choosing a savings account.
Current High-Yield Savings Account Rates
| Bank / Account | APY | Min. Deposit | Compounding |
|---|---|---|---|
| Top Online Banks | 4.75% - 5.00% | $0 | Daily |
| Mid-Tier Online Banks | 4.25% - 4.75% | $0 - $100 | Daily |
| Credit Unions | 3.50% - 4.50% | $5 - $25 | Daily / Monthly |
| Large National Banks | 0.01% - 0.10% | $0 - $25 | Daily |
| Money Market Accounts | 4.00% - 4.75% | $500 - $2,500 | Daily |
Rates are approximate and change frequently based on the Federal Reserve's interest rate decisions. Always verify current rates directly with the bank before opening an account. APY reflects the effective annual return after daily compounding.
Savings account rates are directly influenced by the Federal Reserve's federal funds rate. You can track the current rate through the FRED database.
How Much Should You Keep in a Savings Account?
Financial experts recommend keeping 3 to 6 months of essential expenses in an emergency fund stored in a high-yield savings account. This provides a financial cushion for unexpected events like job loss, medical bills, or car repairs while still earning competitive interest.
- Single income household: aim for 6 months of expenses ($15,000 - $30,000)
- Dual income household: 3-4 months may be sufficient ($10,000 - $20,000)
- Self-employed or variable income: consider 6-12 months ($20,000 - $60,000)
- Near retirement: 12-24 months to avoid selling investments during downturns
Beyond your emergency fund, excess cash in a savings account may be better deployed in higher-returning investments like index funds, CDs, or bonds, depending on your time horizon and risk tolerance.
Best Practices for Maximizing Savings Account Interest
- Choose daily compounding: daily compounding earns more than monthly or quarterly. Most high-yield savings accounts compound daily by default.
- Set up automatic transfers: schedule recurring deposits from your checking account on payday. Automating savings removes the temptation to spend and ensures consistent growth.
- Compare APY, not just interest rate: APY accounts for compounding frequency, making it the true apples-to-apples comparison between accounts.
- Avoid accounts with fees: monthly maintenance fees can erase your interest earnings. Most high-yield savings accounts have no monthly fees.
- Watch for promotional rates: some banks offer introductory APY rates that drop after a few months. Check the ongoing rate, not just the promotional one.
- Stay under FDIC limits: if your savings exceed $250,000, spread funds across multiple banks to maintain full FDIC insurance coverage.
Savings Account Interest vs. Inflation
While high-yield savings accounts offer a safe, guaranteed return, it is important to consider inflation's impact on your purchasing power. The Bureau of Labor Statistics tracks the Consumer Price Index (CPI), which measures inflation.
| Scenario | Savings APY | Inflation Rate | Real Return | $10,000 Real Growth (5 Years) |
|---|---|---|---|---|
| High-yield savings (2026) | 4.50% | 2.50% | +2.00% | $11,040 |
| Average savings (2026) | 0.10% | 2.50% | -2.40% | $8,859 |
| High inflation period | 4.50% | 5.00% | -0.50% | $9,753 |
| Low inflation period | 4.50% | 1.50% | +3.00% | $11,593 |
Even high-yield savings accounts can lose purchasing power during high inflation periods. For long-term savings goals (5+ years), consider investing in stock index funds, which have historically outpaced inflation. A savings account remains the best choice for your emergency fund and short-term goals, where safety and liquidity are priorities over maximizing returns.
Frequently Asked Questions
Most savings accounts compound interest daily, meaning your earned interest is added to the principal balance every day and begins earning interest itself. The compounded interest is then typically posted (credited) to your account on a monthly basis. Daily compounding produces a slightly higher return than monthly or quarterly compounding at the same stated rate.
APR (Annual Percentage Rate) is the simple interest rate without accounting for compounding. APY (Annual Percentage Yield) includes the effect of compounding and reflects the actual amount you will earn in a year. For savings accounts, always compare APY since it gives you the true return. A 4.5% APR compounded daily results in an APY of approximately 4.603%.
Yes. High-yield savings accounts at FDIC-insured banks are just as safe as traditional savings accounts. The FDIC insures deposits up to $250,000 per depositor, per insured bank, per ownership category. This means your money is protected even if the bank fails. Credit unions are similarly protected by the NCUA (National Credit Union Administration).
At a 4.5% APY with daily compounding, $10,000 earns approximately $460 in one year, $942 over two years, and $2,492 over five years. At a traditional bank rate of 0.01%, the same $10,000 earns only $1 per year. The difference between a high-yield and traditional savings account is substantial over time.
Yes, interest earned on savings accounts is considered taxable income by the IRS. Your bank will send you a 1099-INT form if you earn more than $10 in interest during the year. The interest is taxed at your ordinary income tax rate, not the lower capital gains rate. You should account for taxes when calculating your real return.
No. Savings accounts are ideal for your emergency fund (3-6 months of expenses) and short-term savings goals (under 1-2 years). For long-term goals like retirement, investing in diversified stock index funds historically returns 7-10% annually, far outpacing savings account rates. A good strategy is to keep your emergency fund in a high-yield savings account and invest the rest based on your time horizon and risk tolerance.
Federal regulations previously limited savings account withdrawals to 6 per month (Regulation D), but the Federal Reserve suspended this limit in 2020. Many banks have permanently removed the restriction. However, some banks still impose limits or fees on excessive withdrawals. Check your bank's specific policy. For unlimited transactions with competitive rates, a money market account may be an alternative option.
If your bank fails, the FDIC insures your deposits up to $250,000 per depositor, per insured institution, per ownership category. Joint accounts have $500,000 in combined coverage. The FDIC has never failed to protect insured deposits since its founding in 1933. In most cases, you gain access to your insured funds within two business days of the bank's closure. You can verify your bank's insurance status using the FDIC BankFind tool.
Related Guides
How Savings Account Interest Works
Understanding how savings account interest works is the first step to making your money work harder for you. Most banks use a system of daily accrual with monthly compounding, which is the most common method in the United States. This means the bank calculates your interest every day based on your current balance, then adds the accumulated interest to your account once per month.
The key distinction to understand is APY vs APR. The nominal interest rate (APR) is the base rate your bank advertises, while the Annual Percentage Yield (APY) reflects what you actually earn after the effect of daily compounding. For example, a 4.50% nominal rate compounded daily produces an APY of approximately 4.603%. The more frequently your interest compounds, the greater the difference between the nominal rate and the APY.
Here is a concrete example: if you deposit $10,000 into a high-yield savings account earning 4.50% APY, you will earn approximately $450 in the first year. With daily compounding, your actual balance after one year would be $10,460.25, because each day's interest is calculated on a slightly larger balance than the day before. Over five years without additional deposits, that same $10,000 grows to approximately $12,508, earning over $2,500 in compound interest.
The daily accrual process works like this: the bank takes your annual rate, divides it by 365, and applies that fraction to your balance each day. On a $10,000 balance at 4.50%, the daily rate is approximately 0.01233%, which earns about $1.23 on the first day. By day two, you earn interest on $10,001.23. This compounding cycle repeats every day, creating exponential growth over time.
Your savings are protected by federal deposit insurance. The FDIC Deposit Insurance program covers up to $250,000 per depositor, per insured bank, per ownership category, making savings accounts one of the safest places to store your money.
High-Yield Savings Accounts vs Traditional Banks
The difference between high-yield savings accounts and traditional bank accounts is dramatic. Online banks currently offer between 4% and 5% APY, while brick-and-mortar banks typically pay between 0.01% and 0.50% APY. On a $10,000 deposit, that is the difference between earning $450 per year and earning as little as $1 per year.
Why does such a large gap exist? The answer comes down to overhead costs. Traditional banks maintain expensive physical branches, employ large staffs, and pay for prime real estate in every market they serve. Online banks operate with minimal physical infrastructure, passing those savings directly to customers in the form of higher interest rates. Some online banks also use competitive rates as their primary customer acquisition strategy, further driving up the APY they offer.
The critical point many people miss is that both types of accounts carry the same level of safety. Whether your money is in a major national bank or an online-only high-yield savings account, your deposits are FDIC insured up to $250,000 per depositor, per insured institution. There is no additional risk in choosing the higher-yielding option. The only practical trade-off is the lack of in-person banking services, which most people rarely need for a savings account.
Bank Type Comparison
| Bank Type | Typical APY | FDIC Insured | Liquidity | Min Balance |
|---|---|---|---|---|
| Traditional Bank | 0.01% - 0.50% | Yes | High (branches + online) | $0 - $25 |
| Credit Union | 0.50% - 4.00% | Yes (NCUA) | High | $5 - $25 |
| Online HYSA | 4.00% - 5.00% | Yes | High (online/mobile) | $0 |
| Money Market Account | 3.50% - 4.75% | Yes | High (check writing) | $500 - $2,500 |
When shopping for the best rates, focus on APY rather than the nominal interest rate. APY accounts for compounding frequencies and gives you a true apples-to-apples comparison between accounts. The CFPB Bank Account Tools can help you compare features and rates across different institutions.
Building an Emergency Fund
Financial experts universally recommend maintaining an emergency fund of 3 to 6 months of essential expenses. A high-yield savings account is the ideal place to keep this fund because it offers the perfect combination of liquidity (you can access your money anytime) and competitive interest (your emergency fund earns meaningful returns while it waits).
How much do you need? Start by calculating your monthly essential expenses, including rent or mortgage, utilities, groceries, insurance, transportation, and minimum debt payments. For example, if your monthly essentials total $3,500, your target emergency fund range is $10,500 (3 months) to $21,000 (6 months).
Where to keep it: A high-yield savings account is the best home for your emergency fund. Unlike CDs, which lock your money for a set term, a savings account allows instant access when emergencies arise. Unlike investments, your balance will not drop during a market downturn, which is exactly when you are most likely to need emergency funds. And unlike a checking account, a HYSA pays meaningful interest on your reserve, with daily compounding working in your favor.
Emergency Fund Building Timeline
Here is a worked example showing how compound interest accelerates your emergency fund growth. If you save $500 per month at 4.5% APY:
- Month 6: balance reaches approximately $3,034 (3 months reached if expenses are $1,000/month)
- Month 12: balance reaches approximately $6,135
- Month 18: balance reaches approximately $9,305
- Month 21: balance reaches approximately $10,870, hitting the 3-month target for $3,500/month expenses
- Month 42: balance reaches approximately $22,740, surpassing the 6-month target of $21,000
Notice that the compound interest effect means you reach your target slightly faster than if you were simply multiplying $500 by the number of months. The interest earned along the way contributes an additional boost to your savings timeline.
Monthly Savings Milestones at 4.5% APY
| Monthly Deposit | 1 Year | 2 Years | 5 Years | 10 Years |
|---|---|---|---|---|
| $200/month | $2,454 | $5,018 | $13,357 | $29,668 |
| $400/month | $4,908 | $10,036 | $26,714 | $59,336 |
| $600/month | $7,362 | $15,054 | $40,071 | $89,004 |
| $800/month | $9,816 | $20,072 | $53,428 | $118,672 |
| $1,000/month | $12,270 | $25,090 | $66,785 | $148,340 |
These projections assume a constant 4.5% APY with daily compounding and no initial deposit. Actual returns will vary as interest rates change over time. Use the calculator above to model your specific scenario with different rates, starting balances, and contribution amounts.
For a comprehensive step-by-step approach to building your financial safety net, see the CFPB Emergency Fund Guide.
Savings Account vs Other Options
A high-yield savings account is an excellent tool, but it is not the right choice for every financial goal. Understanding when to use a savings account versus other options helps you optimize your overall financial strategy.
When a savings account is best: Emergency funds are the primary use case, along with short-term savings goals you plan to use within 1 to 2 years (vacation fund, car down payment, holiday spending). Savings accounts are also ideal for any money you need liquid access to, meaning you might need to withdraw it at any time without penalty.
When to consider alternatives: For money you will not need for 6 to 60 months, CDs often offer higher rates in exchange for locking your funds for a set term. Money market accounts provide a hybrid of savings and checking features, including check-writing ability and debit card access, often at competitive rates. For long-term inflation protection, Treasury I-Bonds adjust their rate based on inflation, protecting your purchasing power over time.
Savings Account vs Alternatives Comparison
| Account Type | Typical APY | Liquidity | Risk Level | Best For |
|---|---|---|---|---|
| Savings Account | 0.01% - 0.50% | Immediate | None (FDIC) | Day-to-day surplus |
| High-Yield Savings | 4.00% - 5.00% | Immediate | None (FDIC) | Emergency fund, short-term goals |
| Certificate of Deposit (CD) | 4.25% - 5.25% | Locked (3-60 months) | None (FDIC) | Known future expenses, rate locking |
| Money Market Account | 3.50% - 4.75% | Immediate (checks/debit) | None (FDIC) | Large balances needing check access |
| I-Bonds | Variable (inflation-adjusted) | 1-year lockup, then flexible | None (Treasury) | Long-term inflation protection |
Many people use a combination of these tools. A common strategy is to keep your emergency fund in a high-yield savings account, build a CD ladder for medium-term goals, and invest in diversified index funds through a 401(k) or brokerage account for long-term wealth building. The key is matching each dollar to the right vehicle based on when you will need it and how much risk you can tolerate.
For more details on government-backed savings options, visit the Treasury I-Bonds Information page.
Frequently Asked Questions
Most savings accounts use daily accrual with monthly compounding. This means the bank calculates your interest every day based on your current balance (daily accrual), then credits the accumulated interest to your account once per month (monthly compounding). Daily accrual with monthly compounding is the most common method used by both traditional and online banks. Some institutions compound daily and credit daily, while others compound quarterly. The compounding frequency affects your total return: daily compounding produces a slightly higher APY than monthly or quarterly compounding at the same nominal rate.
Yes, online savings accounts are just as safe as traditional bank accounts. As long as the bank is FDIC insured, your deposits are protected up to $250,000 per depositor, per insured institution, per ownership category, regardless of whether the bank has physical branches. Online banks must meet the same federal regulatory requirements as brick-and-mortar banks. You can verify any bank's FDIC insurance status using the FDIC BankFind tool. Credit unions are similarly protected by the NCUA. The main difference is that online banks offer significantly higher interest rates because they have lower operating costs.
The general guideline is to keep your emergency fund (3-6 months of essential expenses) and any short-term savings goals (money you need within 1-2 years) in a high-yield savings account. Everything beyond that is a candidate for investing. For example, if your monthly expenses are $4,000, keep $12,000 to $24,000 in savings, plus any funds earmarked for near-term goals like a vacation or car purchase. Money you do not need for 5 or more years can be invested in diversified index funds through a 401(k), IRA, or brokerage account, where historical returns of 7-10% annually far exceed savings account interest rates.
A money market account is a hybrid between a savings account and a checking account. It typically offers interest rates comparable to or slightly below high-yield savings accounts (3.50% to 4.75% APY), but with added features like check-writing privileges and debit card access. Money market accounts are FDIC insured up to $250,000, just like savings accounts. They often require higher minimum balances ($500 to $2,500) and may have monthly transaction limits. A money market account can be a good choice if you want to earn competitive interest while maintaining easy access to your funds for occasional payments. Compare rates using the best interest rates guide.
Yes, interest earned on savings accounts is considered taxable income by the IRS. If you earn more than $10 in interest during the calendar year, your bank will send you a 1099-INT form reporting the interest income. This interest is taxed at your ordinary income tax rate, not the lower capital gains rate that applies to investment income. For example, if you earn $500 in savings account interest and your marginal tax rate is 22%, you will owe approximately $110 in federal income tax on that interest. State taxes may also apply depending on where you live. Keep this in mind when comparing the after-tax return of savings accounts versus tax-advantaged options like 401(k) contributions or municipal bonds.
The nominal interest rate is the base annual rate before accounting for compounding. APY (Annual Percentage Yield) is the effective annual rate after compounding is factored in. Because most savings accounts compound daily, the APY is always slightly higher than the nominal rate. For example, a 4.50% nominal rate compounded daily produces an APY of about 4.603%. When comparing savings accounts, always use APY for an accurate comparison since it reflects the actual return you will earn. Learn more about this distinction in our APY vs APR explainer.
Savings account rates are directly influenced by the Federal Reserve's federal funds rate. When the Fed raises rates, banks increase the APY on savings accounts to remain competitive and attract deposits. When the Fed cuts rates, savings APY declines. This is why high-yield savings accounts jumped from under 1% in 2021 to over 5% in 2023 as the Fed raised rates aggressively. If you expect rates to decline, you might consider locking in current rates with a CD while keeping your emergency fund in a liquid savings account.
You cannot lose your deposited money in an FDIC-insured savings account up to the $250,000 coverage limit. However, you can lose purchasing power if your savings rate is lower than inflation. For example, if inflation is 3% and your savings account earns 0.10%, your money effectively loses about 2.9% of its buying power each year. This is why choosing a high-yield savings account with competitive rates is important. At 4.50% APY with 2.50% inflation, your real return is positive at approximately 2%, meaning your purchasing power actually grows.
To maximize your earnings: (1) choose an account with daily compounding and the highest available APY, (2) set up automatic recurring deposits to consistently grow your balance, (3) avoid accounts with monthly maintenance fees that eat into your returns, (4) keep your balance below FDIC limits or spread across multiple banks if needed, and (5) periodically compare rates since the best rates change as the market shifts. Also consider keeping only your emergency fund and short-term savings in the account, while investing longer-term money for potentially higher returns.
A CD ladder is a strategy where you split your savings across multiple CDs with staggered maturity dates (for example, 3-month, 6-month, 12-month, and 24-month terms). As each CD matures, you either use the funds or reinvest into a new longer-term CD. This strategy provides both higher rates (CDs typically pay more than savings accounts) and regular liquidity (a CD matures every few months). A CD ladder works well alongside a savings account: keep your emergency fund in a high-yield savings account for instant access, and place additional savings into a CD ladder for slightly higher returns with structured access.