Here's How Much $10,000 Earns You in a Savings Account

Your low-rate savings account is costing you money.

There's always a lot of talk in the finance world about interest rates. Whether they're up, whether they're down, how they compare to previous highs and lows. If it seems like a lot, well, there's a good reason. The interest rate on any given product is arguably the single most important factor in whether it's a good deal or not. And this is especially true on a personal finance level.

Consider a savings account. Imagine your savings account has a balance of $10,000. How much will that money grow? The deciding factor is the interest rate. Let's break it down.

The effects of interest

The money you make off your savings is calculated based on the interest rate offered by that account. If you have a low interest rate, you won't make much money at all. If you have a higher rate, your money will grow faster.

In the table below, we look at a savings account with a balance of $10,000. Without adding any additional funds, here's how much that account would earn in one year at different interest rates:

As you can see, a higher interest rate makes a big difference in how much money you earn in one year. That's why many people are willing to switch banks to find better rates.

Yes, there are other factors. For example, how often the interest is compounded (how frequently it's calculated and added to your account) can also make a difference. But while these differences can have a big effect with larger sums, they tend to be quite small at this level.

Average interest rates

Up until recently, the national average for a bank savings account was less than a tenth of a percent. Recent federal rate increases have driven many banks to boost their rates, so the average has risen to a whopping 0.33%.

For those banking with most of the large, national chains, you're likely looking at an interest rate between 0.1% and 0.3%. These banks simply don't need to draw in the small-time savings accounts, so they aren't likely to increase their rates anytime soon.

However, if you use a smaller, local, or online bank, chances are good you can find a much better rate. Some of the highest rates we've seen lately have been in the 3% to 3.5% range. (The National Rate Cap is currently set to 5.08%.)

How to get a better interest rate

You don't have to live with a low savings account rate. There are steps you can take to get a higher rate -- if you're willing to do a bit of work. Here are some options.

• Switch banks: The most effective method of getting a better rate is probably going to be switching banks. Online banks tend to have the best rates, but your local credit union may also offer you a good deal. You don't need to move all of your accounts, either; if you're happy with your current checking account, leave it where it is.
• Switch bank accounts: Some banks offer multiple tiers of savings accounts. In some cases, paying a higher monthly fee or depositing more money can unlock a higher tier with a better interest rate.
• Ask for a better rate: If you have a really great relationship with your bank -- and it's a small, local bank that cares about that relationship -- you could potentially get a higher rate simply by asking for one. This isn't exactly likely to be effective, but it probably won't hurt to try.

Savings vs. investments

One important thing to keep in mind about savings accounts is that they're not for long-term savings like retirement funds. Why? Because savings accounts aren't going to increase your wealth.

Even the best high-yield savings account is probably going to grow less than inflation. So the money in your savings account is actually losing value by being there. (Most checking accounts are worse, so a savings account is still the best place for your emergency fund.)

Historically, the stock market has outpaced inflation. That's why pretty much every expert will tell you to park anything above your emergency fund into some kind of investment account.