It is valuable to have savings. If you have extra cash in an emergency fund, it'll be easier to pay for unanticipated expenses that come your way. The recommended amount to save varies from person to person, as everyone's financial situation differs.
But for many people, $20,000 is a sizable emergency fund goal that will go far. If you have a large chunk of savings set aside, make sure you keep it in a bank account that earns interest.
Curious how much interest you can make off $20,000? Below, I'll explain how much you can earn with this sum by keeping your cash in a high-yield savings account.
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Maximize your earnings with a high-yield savings account
Before opening a savings account, check the annual percentage yield (APY). Banks use this to describe the returns an account holder can expect by keeping their cash in a savings account for one year. Many brick-and-mortar banks offer low APYs, so it's common to see rates as low as 0.01% APY. At that meager rate, you won't earn much at all.
But if you open a high-yield savings account, you'll likely be offered a much higher APY. Many online banks offer 4.00% APY or higher for these accounts. How much interest will you earn by keeping $20,000 in a high-yield savings account? It could be more than you think.
$20,000 in savings accumulates this much in interest
To determine how much interest you'll earn, multiply your initial deposit ($20,000) by the APY your bank account offers. Doing this will show you how much you'd make if you kept your cash in the bank for one year.
For the following calculations, I went with a 0.01% APY for a standard savings account and a 4.50% APY for a high-yield savings account. The bank accounts on our list of the best high-yield savings accounts have APYs ranging from 4.15% to 5.05% -- I settled somewhere in between.
These calculations assume a $20,000 deposit with no additional deposits made to your account:
| Bank account type | Interest earned after one year |
|---|
| Savings Account, 0.01% APY | $2.00 |
| High-Yield Savings Account, 4.50% APY | $900 |
Source: Author's calculations
As you can see, there is a significant difference in earnings. Keeping a large sum of cash like this in a high-yield savings account would be worthwhile if you hope to maximize the interest you earn.
Compound interest is on your side when it comes to savings
The calculations above show how much interest you can earn by keeping $20,000 in the bank for a year. But you can make more money thanks to compound interest, which is interest that you earn on interest. The longer you keep your money in your savings account, the more you earn.
To give you an idea how you can benefit from compound interest when you have a savings account, here's how much money you'll make if you keep $20,000 in a high-yield savings account for anywhere from one to five years. Again, the following calculations assume you make no additional contributions beyond the initial deposit.
Here's a breakdown:
| Year | Starting balance | Interest earned | Ending balance |
|---|
| 1 | $20,000 | $900 | $20,900 |
| 2 | $20,900 | $940.50 | $21,840.50 |
| 3 | $21,840.50 | $982.82 | $22,823.32 |
| 4 | $22,823.32 | $1,027.05 | $23,850.37 |
| 5 | $23,850.37 | $1,073.27 | $24,923.64 |
Source: Author's calculations
That's $4,923.64 -- nearly an additional $5,000 earned in five years, assuming the APY doesn't change. However, APYs can and do change, so your APY likely won't stay at the same rate for five years.
Earn more interest with no extra work
Considering the rates offered, now is an excellent time to open a high-yield savings account. By stashing your cash in a bank account with a higher APY, you can earn more interest without doing any work. Most bank accounts take only a few minutes to open, so it's worth the effort. You can improve your personal finances by boosting your bank account balance with earned interest.
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FAQs
By keeping your extra savings in a high-yield savings account, you may be able to earn more interest. 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.
How much interest will I earn on $20,000? ›
How much $20,000 earns you in a savings account
| APY | Interest earned in one year |
|---|
| 3.50% | $700 |
| 4.00% | $800 |
| 4.50% | $900 |
| 4.75% | $950 |
3 more rowsMar 31, 2023
Interest can compound annually, quarterly, monthly, or even daily—the more often interest compounds, the faster your balance grows. For example, say you deposited $10,000 in a high-yield savings account with a 3% APY that compounds annually. At the end of a year, you'd have $10,300.00 in your account.
How much will $5000 make in a high-yield savings account? ›
Shopping around for a top APY means you can earn 10 to 12 times more than the national average rate, which is less than half a percent. $5,000 in one of today's best high-yield savings accounts could earn as much as $136 in just six months—compared to about $11 with an average rate.
Is 20K a lot of money in savings? ›
While $20K may not let you quit your job, it's enough to start building financial security, whether you max out your retirement accounts, invest in fine art, or divide your cash between multiple investments.
What happens if you put 20k in a high-yield savings account? ›
By keeping your extra savings in a high-yield savings account, you may be able to earn more interest. 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.
What is the best investment to make with $20000? ›
Individual stocks
Since owning individual stocks increases your portfolio's exposure to the performances of individual companies, it's a good idea to diversify your stock holdings by investing in at least 10 to 15 stocks to start. With $20,000 to invest, that works out to about $1,500 to $2,000 per company.
Can you ever lose your money with high-yield savings account? ›
Safety: As noted, most high-yield savings accounts are either FDIC or NCUA insured for up to $250,000. Moreover, as deposit accounts, they're not susceptible to the ebbs and flows of the market, so there's little to no chance you'll lose the money you deposit into one.
Is there a catch with high-yield savings? ›
Pros and cons of a high-yield savings account
A high-yield savings account offers a higher rate of return on your money compared to standard savings accounts. But some of these accounts charge fees, have minimum balances requirements, and offer variable interest rates that can go up and down over time.
Can you live off of a high-yield savings account? ›
It's possible, but it isn't realistic for everyone. Living off of interest relies on having a large enough balance invested that your regular interest earnings meet your salary needs. Rest assured that you don't need to earn a million dollar paycheck to reach your goal.
Most Americans have $5,000 or less in savings
| Savings account balance | Percentage of respondents |
|---|
| $500 to $1,000 | 8% |
| $1,001 to $5,000 | 22% |
| $5,001 to $10,000 | 8% |
| $10,000 to $20,000 | 7% |
3 more rowsOct 18, 2023
How can I double 20K? Investing in high-growth assets with strong return potential, such as stocks, can help you double your $20,000 investment over time.
Where should I put my 20K savings? ›
Your platform will give you a number of options and which one works best for you will depend on your circ*mstances.
- A Stocks and Shares ISA. Money invested in an ISA is sheltered from tax while it grows and there will be no tax to pay when you withdraw money either. ...
- A Self Invested Personal Pension. ...
- A Trading Account.
Formula for calculating simple interest
For example, if you take out a five-year loan for $20,000 and the interest rate on the loan is 5 percent, the simple interest formula would be $20,000 x .05 x 5 = $5,000 in interest.
Can you live off the interest of $200000? ›
Summary. Retiring with $200,000 in savings will roughly equate to $10,000 annual income. If you choose to retire early, you will need additional savings in order to have a comfortable retirement.
How much interest does $10 000 earn in a year? ›
How much interest can you earn on $10,000? In a savings account earning 0.01%, your balance after a year would be $10,001. Put that $10,000 in a high-yield savings account that earns 5% APY for the same amount of time, and you'll earn about $500.
How much will $30,000 make in a high-yield savings account? ›
$30,000 in savings accumulates this much interest
| Account type | Interest earned after one year |
|---|
| Savings Account, 0.01% APY | $3.00 |
| High-Yield Savings Account, 4.50% APY | $1,350 |
Aug 28, 2023
