A savings rate in dollars: $50 a year or $407, on the same $10,000

A savings rate is quoted as a percentage, and a percentage is hard to feel. In dollars it is plain. On $10,000 left alone for a year, an account paying 0.5% adds about $50. One paying 4% adds about $407. The gap is $357, for the same money sitting in the same kind of account.

One year on $10,000

Both rates here are round examples, not any bank’s. Interest is added monthly, which is how the savings calculator works it out.

The difference is $357.30 in the first year. Nothing else about the two accounts has to differ for that to be true.

Five years makes the gap wider than five times

Leave the same $10,000 for five years and the lower rate pays $253 in all. The higher one pays $2,210. That is more than five years of $407, because each month’s interest earns interest afterwards.

Half a point, in dollars

Small differences between rates are worth working out before caring about them. Between 4% and 4.5% on $10,000, the difference is $51.98 a year. On $1,000 it is about $5. Whether that is worth moving money for is a question the arithmetic cannot answer, but it does tell you what the question is worth.

What the figure leaves out

• Rates on savings accounts change. A bank can lower its rate at any time, so a year at one rate is an assumption, not a promise.
• APY already includes compounding. Banks advertise an annual percentage yield. The calculator takes a rate and compounds it monthly, so typing an APY into it comes out slightly high: a 4% APY pays $400 on $10,000 in a year, not $407.
• Interest is taxable income. What you keep is lower, by an amount that depends on your own tax position.
• Prices rise. A balance that grows more slowly than prices buys less at the end than it did at the start.

Put your own balance and a rate you have actually been offered into the savings calculator. These are estimates, not financial advice.