How much interest will $20,000 earn in savings?

Interest on $20,000 at different rates

The rate on a savings account is quoted as a yearly figure (APY), which already includes the effect of interest being added during the year. The table shows one year of interest and the balance after one and five years with nothing added or taken out.

Tax on your interest

At 4%, $20,000 earns $800.00 a year, which counts as taxable income. At a 22% federal rate that is about $176.00 in tax.

In the US, savings interest is taxable as ordinary income and your bank will send a Form 1099-INT if you earn $10 or more. Deposits are insured up to $250,000 per depositor, per insured bank, per ownership category by the FDIC (or NCUA for credit unions).

What if you add a little every month?

Adding $100 a month to $20,000 at 4% would take the pot to about $30,951 after five years, compared with $24,333 with no top-ups. You would have paid in $26,000 of that.

How to get a better rate

• Compare easy-access, notice and fixed-rate accounts: fixed accounts usually pay more but lock the money away.
• Check whether the headline rate is a short-term bonus that drops after a year.
• Switch when your rate falls: banks often cut rates on old accounts.
• Look at high-yield online savings accounts and credit unions, which often pay more than big banks.
• Keep an emergency fund of three to six months of spending in an instant-access account.