Your Regular Savings Account Is Costing You Money

Not all savings accounts and cash accounts are created equal. They can have big differences, like how much FDIC insurance they offer, what account fees they charge, and which features they make available. But arguably the most consequential difference between accounts is how much interest they pay you for your savings. If you keep your money in a low-yield savings or cash account, you could be leaving hundreds — if not thousands — of dollars of free money on the table. In fact, a recent analysis by the Wall Street Journal found that in Q3 of 2022 alone, Americans could have collectively earned a staggering $42 billion more in interest if they had moved their cash from one of the five biggest banks in the country to one of the five savings accounts with the highest APYs. 

In this post, we’ll run the numbers to illustrate this phenomenon on an individual level and show you how to calculate it for yourself. We hope this information will help you confidently choose the right home for your cash, and we hope you’ll consider the Wealthfront Cash Account for the job. 

How low-yield accounts cost you money

As of December 19, 2022, the average interest rate for savings accounts is 0.30% according to FDIC.gov. That means if you have $10,000 in a savings account which is compounding monthly and earning the national average, your money will grow by a relatively uninspiring $30.04 over the course of one year and a disappointing $304.51 over the course of an entire decade. 

That isn’t great, but it’s still better than the deal you’ll get at some large banks. One large bank in the U.S. (with tens of millions of households as clients) pays a paltry 0.01% APY. At that rate, your $10,000 will earn just $1 over the course of a year and just $10.00 over the course of a decade with monthly compounding. 

Wealthfront’s Cash Account, by comparison, has a 3.80% APY as of January 10, 2023. This is one of the highest APYs on the market, and it has the power to help your savings grow much faster than they would in a low-yield account. In one year, a $10,000 deposit earning a 3.80% APY  would earn $379.44. After 10 years at that rate, your deposits would have grown by $4,512.45 with monthly compounding.

The chart below can help you visualize this stark difference:

As you can see, there can be a very high opportunity cost to earning a low yield on your cash savings over a long period of time. While the differences aren’t huge over the course of a single year, the gap grows markedly over time thanks to the power of compounding. And luckily, it’s easy to avoid missing out on the higher earnings — you just need to keep your savings at an institution you trust to consistently pay you a competitive APY over time.

Calculating the opportunity cost of a low-yield account in your particular situation is easy. We suggest using an online calculator to convert your bank’s APY into an interest rate if needed (APY takes into account the impact of compounding while interest rates do not) and plugging that rate into a tool like this one from Investor.gov. The results may surprise you. 

Find a good home for your cash

Don’t leave money on the table — keep your cash with an institution that will help it grow. We built the Wealthfront Cash Account to be an ideal home for your short-term savings. In addition to a high APY (with no strings attached) to help your savings grow faster with no market risk, it offers:

• Up to $2 million in FDIC insurance through our partner banks, which is 8x what you’d get from a traditional bank
• Unlimited free transfers 
• Access to a debit card and 19,000 free ATMs so your cash is always available on your terms
• Best-in-class automation features so you can organize your savings into categories, track progress against your goals, and invest in our award-winning investing accounts within minutes during market hours
• Absolutely no account fees

At Wealthfront, we want to help you build long-term wealth on your own terms, and we’re proud to offer you a full suite of accounts to help you get there.