It's a dilemma that many would love to have to contend with: You open your email and find out you're about to get an extra $5,000. Now the question is, what do you do with it? How can you get the most out of that cash? Here's what you should know if you're looking at stashing that money in a savings account.
How much you can earn on $5,000 in a savings account
There are two types of savings accounts you can use: a traditional savings account and a high-yield savings account (HYSA). And although you might automatically think the latter is the better option, there are factors other than the annual percentage yield (APY) that you should consider.
But first, let's look at the actual earnings that you can expect on $5,000 with these two account types.
| Account type | Interest rate | Interest earned after 1 year |
|---|---|---|
| Traditional savings account | 0.46% | $23 |
| HYSA | 5% | $250 |
Data source: Author's calculations
With a traditional savings account, you might not earn much in interest, but keep in mind that these accounts offer the opportunity to earn some interest over time while keeping that cash easily accessible -- with few, if any, requirements to earn interest.
Our Picks for the Best High-Yield Savings Accounts of 2024
SoFi Checking and Savings
APY up to 4.60% Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet. Min. to earn $0 Open Account for SoFi Checking and Savings Member FDIC. | APY up to 4.60% Rate infoYou can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet. | Min. to earn $0 |
Synchrony Bank High Yield Savings
APY 4.75% Rate infoOur Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC Min. to earn $0 Open Account for Synchrony Bank High Yield Savings Member FDIC. | APY 4.75% Rate infoOur Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC | Min. to earn $0 |
American Express® High Yield Savings
APY 4.25% Rate info4.25% annual percentage yield as of June 10, 2024 Min. to earn $1 Open Account for American Express® High Yield Savings Member FDIC. | APY 4.25% Rate info4.25% annual percentage yield as of June 10, 2024 | Min. to earn $1 |
With a HYSA, by contrast, there is an opportunity to earn more in interest. But there may be requirements to meet a minimum initial deposit threshold or maintain a certain minimum balance in order to score that high rate. So HYSAs can be less accessible for beginning savers.
With both of these accounts, though, there are two important caveats to consider: First, you'd have to leave that cash alone for those earnings to apply (taking out money would lower it, but you could also earn more if you were to contribute more to that account.) And secondly, the rates here aren't fixed. So if the rate changes, you may earn more or less than you did when you first opened the account.
Three other places you may want to put that cash
If you're stuck on some of the cons associated with savings accounts, there are other options that could work better for you.
1. CDs
Certificates of deposit (CDs) offer a fixed interest rate that can be similar to what you'd find with an HYSA -- so you'd lock in those earnings and potentially earn more than with a savings account if rates drop in the future. You just have to be willing to part with that cash for anywhere from six months to several years, depending on the CD term you choose.
2. Retirement accounts
If you aren't already contributing to a retirement account, or you're doing the bare minimum, you might consider putting some of that extra cash into your 401(k) or individual retirement account (IRA). As long as you aren't going over the annual contribution limits, this can translate to massive earnings over time. For instance, if you invest $5,000 over 40 years and it earned an average return of 7%, that would amount to almost $75,000.
3. Investment portfolio
Investing in the market can also potentially lead to more earnings than a traditional savings account or HYSA, as some stocks may perform much better over the course of a year. Of course, there is more risk here as you can lose money if the market dips. So this is best only done if you already have emergency savings to fall back on and you can afford to take on that risk. And, in general, investing is best approached as a long game, as you'll have more time to wait out periods of volatility.
It can be difficult to know exactly what to do with an influx of cash. After all, you want to make sure you're getting the most out of your money. But as long as you know your goals and needs, you'll be able to select the account that offers the best of both worlds.
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