High-Yield Savings Account (HYSA) Calculator

A high-yield savings account is a type of bank account that offers a higher interest rate compared to traditional savings accounts. It allows individuals to earn more on their deposited funds, helping their savings grow at a faster rate over time.

When banks market the interest rates for savings accounts, they typically advertise the APY (Annual Percentage Yield). However, the rate they use to calculate the actual interest earned is the APR (Annual Percentage Rate) compounded daily. This can cause confusion for individuals who are not familiar with the distinction between these two terms.

For a consumer, the simplest way to think about APY is annually. If you deposit $10,000 in a high-yield savings account with an APY of 5%, at the end of one year, you will have earned $500. If you withdraw your money after 6 months, you will not have earned $250, you will have earned slightly less than that.

The key difference between APY (Annual Percentage Yield) and APR (Annual Percentage Rate) lies in how they represent the interest earned and the impact of compounding. APY takes into account the effect of compounding, while APR does not.

APR represents the nominal interest rate without factoring in compounding. It is a simple percentage that indicates the amount of interest you would earn in one year if it were not compounded. On the other hand, APY takes into account the effect of compounding, which means it reflects the actual interest you would earn over a year, considering the compounding frequency.

To understand the difference between APR and APY, imagine the following scenario:

Suppose a bank offers a savings account with an APY of 5% and daily compounding. At first glance, you might assume that the interest rate applied daily is also 5%. However, that’s not the case.

Here is the formula for calculating the APR from the APY

APR = (1 + APY)^(1/365) – 1

Now, let’s use the formula to convert an APY of 5% to an APR with daily compounding:

APR = (1 + 0.05)^(1/365) – 1

After evaluating this expression, the APR would be approximately 4.8896% (rounded to four decimal places).

So, an APY of 5% with daily compounding converts to an APR of approximately 4.8896% when calculated using the formula mentioned above.

When searching for a high-yield online savings account, it’s crucial to focus on specific features that can make a significant difference in your financial journey. While some principles apply to both savings and checking accounts, the disparities among top-notch savings accounts are minimal. On our list of best online savings accounts we have a selection of the best accounts with an emphasis on which accounts have the best rates. When considering an online savings account, here are the key factors to prioritize:

1. Rate: The idea of a savings account is to save money, and the higher the rate, the more you will end up saving. As long as the fees are low and the account is FDIC insured, rate should be one of the important considerations.
2. User-friendly website and app: In this digital era, there’s little justification for a bank to have a cumbersome website or app. It’s important to have easy access to your account, enabling you to manage your savings effortlessly. Look for features like savings goals, which allow you to allocate funds for specific purposes such as an emergency fund or a family vacation.
3. Excellent customer service: While you may not spend as much time managing your savings account as you do with a checking account, reliable customer service remains essential. It’s crucial to have the option to contact someone helpful at your bank through channels like phone, email, or chat whenever you have inquiries or concerns.

Aspects to Avoid:

1. Excessive fees and service charges: Seek a savings account that avoids charging you for monthly maintenance or paper statements. Even with a good interest rate, excessive fees can reduce or eliminate your earnings.
2. High minimum balance requirement: While this might not be a dealbreaker if you possess substantial assets, it’s still reassuring when your bank assures you that they will continue paying interest and refrain from penalizing you, even if your account balance is low.
3. High initial deposit requirement: While a few banks may offer competitive interest rates for sizable initial deposits, many banks provide favorable interest rates without necessitating a large deposit. It’s worth considering these options to start saving without a large initial commitment.

By considering these features and avoiding potential pitfalls, you can make an informed decision when selecting a high-yield online savings account that aligns with your financial goals.