Savings account interest rates are at historic lows, but a new NerdWallet study has found that consumers could earn hundreds more a year in interest by choosing a high-yield account.
We analyzed a range of data to evaluate how much Americans were saving and how much interest they're missing out on.
A multibillion-dollar difference
Even the highest-yield savings accounts are topping out around 1.10%, but with the March 15 Fed rate hike, it's still worth shopping around for a new account. The difference in interest on savings of $25,000 between the highest- and lowest-yield accounts is $274 per year. But this amount will increase as interest rates begin to rise -- which they're expected to do as the federal funds rate increases. Wednesday's rate increase is the first of what could be a series of hikes this year.
The average American saves around $2,540 per year, which in the highest-yield account will earn only $28 more per year than in the lowest-interest account. If every working American had a low-interest account of 0.01%, they would earn $51.5 million based on the average amount of personal savings. But if they all had high-interest accounts, they'd earn $5.7 billion, a difference of more than $5.6 billion.
We're saving more, but not enough
NerdWallet's research found consumers were saving almost twice what they were a decade ago -- 5.85% of their average disposable income in 2016 compared with 2.95% in 2007. But it's not enough to cover various emergencies. The amount of $2,540 might not even cover the cost of replacing your transmission. And just because you save money doesn't mean it will remain untouched in savings until an emergency comes up.
Saving your tax refund doubles your ability to cover an emergency
As of 2017, the average tax refund was $3,071. That's more than the average American saves per year. Saving your refund could double your ability to cover an emergency expense, such as a new water heater or transmission or an emergency room visit. As a bonus, it would earn an additional $34 in interest per year in a high-yield savings account.
Saving a tax refund isn't the only way to supercharge your savings. Stashing away other windfalls -- gifts of cash, gambling winnings, an inheritance -- enables you to cover unexpected expenses, pay off debt or save for retirement.
For actionable tips on finding a high-yield savings account and saving more money, and for the study methodology, check out the full study.
Erin El Issa is a staff writer at NerdWallet, a personal finance website. Email firstname.lastname@example.org, or find her on Twitter @ErinElIssa.
The article "If the Fed Can, So Can You: Hike Your Savings Rate" originally appeared on NerdWallet.