Your Emergency Fund Could Earn $72 Per Month in a Savings Account

Emergency Fund
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Amid a high-inflationary environment, plus the chance of a mild recession later this year, it's especially crucial to have an emergency fund prepared. While there are several options for storing your emergency fund, the top-paying high-yield savings account (HYSA) offers a 5.02% annual percentage yield (APY), which can help you get the most value out of your assets. With an initial investment of $16,732—three months' worth of the average annual expenditures for all consumer units in 2021—an HYSA with a 5.02% APY could net you approximately $72 in interest each month after just one year.

Key Takeaways

  • One of the most common guidelines when building an emergency fund is to have at least three to six months' worth of expenses.
  • If you were to put a $16,732 emergency fund into a high-yield savings account with an APY of 5.02%, you would earn almost $860 in interest after one year.
  • When the Federal Open Market Committee (FOMC) increases or decreases the fed funds rate, savings account interest rates tend to follow suit.

How Your Emergency Fund Could Grow in a High-Yield Savings Account

A common school of thought is that you should keep at least three to six months' worth of expenses in your emergency fund. According to the U.S. Bureau of Labor Statistics, the average annual expenditures for all consumer units in 2021 were $66,928, or around $5,577.33 per month. Based on that recommendation, you'd want an emergency fund worth at least $16,732 ($5,577.33 multiplied by three months).

If you put your $16,732 into a monthly compounding HYSA with an APY of 5.02% for one year, you'd earn $72 per month in interest. Even without making any further contributions, the total value of your HYSA after one year would be $17,591.54. That means your emergency fund could grow by about $860 (or around $72 each month) without any extra effort on your part (as long as the rate stays the same).

Even if you selected a different top-paying high-yield savings account, you could still earn over $750 in interest in just one year.

Best High-Yield Savings Accounts by APY
Financial Institution APY Initial Deposit Interest Earned After One Year (Rounded) Monthly Interest Earned (Rounded)
CFG Bank 5.02% $16,732 $860 $72
Newtek Bank 5.00% $16,732 $856 $71
UFB Direct 4.81% $16,732 $823 $69
Vio Bank 4.77% $16,732 $816 $68
CIT Bank 4.75% $16,732 $812 $68
Bask Bank 4.65% $16,732 $795 $66
Popular Direct 4.65% $16,732 $795 $66
Salem Direct Bank 4.61% $16,732 $788 $66
Upgrade 4.56% $16,732 $779 $65
Western State Bank 4.55% $16,732 $777 $65
Bread Savings 4.50% $16,732 $769 $64
First Foundation Bank 4.50% $16,732 $769 $64
Ivy Bank 4.50% $16,732 $769 $64
TotalDirectBank 4.50% $16,732 $769 $64
BankPurely 4.45% $16,732 $760 $63
iGObanking 4.45% $16,732 $760 $63

And, the more months you save the more interest you'll earn in the long run. If you instead deposited $33,464 ($5,577.33 multiplied by six months), your HYSA will have grown by about $1,719 during the same one-year period. Preparing a larger emergency fund doubled the interest in the same amount of time, and since the HYSA will continue to compound each subsequent month, your ability to weather an unforeseen crisis would only improve over time.

Of course, not everyone can afford to drop over three or six months' worth of expenses into a savings account right away. Instead, calculate your living expenses for one month and see how much you cover with savings. Saving even two months' worth is a good start, and you can make three to six months your emergency fund goal. You can then deposit anything remaining in your budget each month into your high-yield savings account, and the interest it earns will help you reach that goal faster.

APY & the Fed Funds Rate

APY is a standardized measure of an account's interest rate expressed as an annualized percentage yield. Like all interest rates, an account's APY (that isn't a fixed rate) can be affected by changes to the federal funds rate—the target interest rate set by the Federal Open Market Committee (FOMC) eight times per year.

Whenever the fed funds rate increases, interest-bearing savings accounts may also increase their savings rates. The FOMC raised its benchmark rate by a quarter-point in March, the latest in a series of increases to combat inflation. There is always the chance that the fed funds rate is lowered and so it may be wise to deposit available funds into a savings account with a high interest rate right now to earn as much as possible before rates drop.

Rate Collection Methodology Disclosure

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer savings accounts to customers nationwide. We determine daily rankings of the top-paying savings accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the savings account's minimum initial deposit must not exceed $25,000.

Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best high-yield savings accounts, read our full methodology.

Article Sources
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  1. U.S. Bureau of Labor Statistics. "Consumer Expenditures--2021."

  2. Vanguard. "What's the Right Emergency Fund Amount?"

  3. Board of Governors of the Federal Reserve. "Federal Open Market Committee: Meeting Calendars, Statements, and Minutes (2018-2023)."

  4. Board of Governors of the Federal Reserve System. "Federal Reserve Press Release March 22, 2023."