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:

Chart showing how $10,000 grows at various APYs over the course of a decade
Source: Wealthfront, 2023

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.

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Disclosure

We’ve partnered with Green Dot Bank.  The checking features offered on your WealthFront Cash account are provided by and the WealthFront Visa® Debit Card is issued by Green Dot Bank, Member FDIC, pursuant to a license from Visa U.S.A. Inc. Visa is a registered trademark of Visa International Service Association. Checking features for the Cash Account are subject to identity verification by Green Dot Bank and the WealthFront Visa® Debit Card is optional and must be requested. Wealthfront products and services are not provided by Green Dot Bank. Green Dot Bank operates under the following registered trade names: GO2bank, GoBank and Bonneville Bank. All of these registered trade names are used by, and refer to, a single FDIC-insured bank, Green Dot Bank. Deposits under any of these trade names are deposits with Green Dot Bank and are aggregated for deposit insurance coverage.

Fee-free ATM access applies to in-network ATMs only. For out-of-network ATMs and bank tellers a $2.50 fee will apply, plus any additional fee that the owner or bank may charge. Fees and Eligibility requirements may apply to certain checking features, please see the Deposit Account Agreement for details. Copyright 2023 Green Dot Corporation. All rights reserved.

Cash Account is offered by Wealthfront Brokerage LLC (“Wealthfront Brokerage”), a Member of FINRA/SIPC. Neither Wealthfront Brokerage nor any of its affiliates are a bank, and Cash Account is not a checking or savings account. We convey funds to partner banks who accept and maintain deposits, provide the interest rate, and provide FDIC insurance. Investment management and advisory services–which are not FDIC insured–are provided by Wealthfront Advisers LLC (“Wealthfront Advisers”), an SEC-registered investment adviser, and financial planning tools are provided by Wealthfront Software LLC (“Wealthfront”).

The Annual Percentage Yield (APY) for the Cash Account may change at any time, before or after the Cash Account is opened. The APY for the Wealthfront Cash Account represents the weighted average of the APY on the aggregate deposit balances of all clients at the program banks. Deposit balances are not allocated equally among the participating program banks.

The cash balance in the Cash Account is swept to one or more banks (the “program banks”) where it earns a variable rate of interest and is eligible for FDIC insurance. FDIC insurance is not provided until the funds arrive at the program banks. FDIC insurance coverage is limited to $250,000 per qualified customer account per banking institution. Wealthfront uses more than one program bank to ensure FDIC coverage of up to $2 million for your cash deposits. For more information on FDIC insurance coverage, please visit www.FDIC.gov. Customers are responsible for monitoring their total assets at each of the program banks to determine the extent of available FDIC insurance coverage in accordance with FDIC rules. The deposits at program banks are not covered by SIPC.

The information contained in this communication is provided for general informational purposes only, and should not be construed as investment or tax advice. Nothing in this communication should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. Any links provided to other server sites are offered as a matter of convenience and are not intended to imply that Wealthfront Advisers, Wealthfront Brokerage or any affiliate endorses, sponsors, promotes and/or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.

Wealthfront, Wealthfront Advisers and Wealthfront Brokerage are wholly owned subsidiaries of Wealthfront Corporation.

Copyright 2023 Wealthfront Corporation. All rights reserved.

About the author(s)

Nathaniel Gandy, CFP® is a Product Specialist Manager at Wealthfront and is a CERTIFIED FINANCIAL PLANNER™ professional. He also holds the FINRA Series 7 and Series 66 licenses.