Pro: High APY
A 5% interest savings account is a type of high-yield savings account. High-yield savings accounts are similar to traditional savings accounts you'd find at brick-and-mortar banks, but they offer more interest.
The bottom line
A high-yield savings account that pays 5% interest is highly competitive. Not only does it significantly outpace the average savings account interest rate, but it's on the high end of the scale even for high-yield savings products.
According to Rachel Sanborn Lawrence, advisory services director and certified financial planner at Ellevest, you should feel OK about taking on purposeful debt that's below 10% APR, and even better if it's below 5% APR.
Vanessa Potter, assistant vice president and branch manager at Addition Financial Credit Union, pegs the best interest rate for a savings account at 4.00% or more. "To find the best interest rates on savings accounts, you need to research and take your time during the process," she advises.
Generally, what's considered a bad interest rate is anything higher than 10%. Ideally, you want to get an interest rate that's below 5% — but with little or bad credit, that can be harder to achieve.
For the foreseeable future, you won't find any banks that offer 7% APY on savings accounts. However, you can find some credit unions that pay 7% or more on checking accounts. Before opening an account, take a close look at the terms and conditions to determine whether you can earn the advertised rate.
General ROI: A positive ROI is generally considered good, with a normal ROI of 5-7% often seen as a reasonable expectation. However, a strong general ROI is something greater than 10%. Return on Stocks: On average, a ROI of 7% after inflation is often considered good, based on the historical returns of the market.
For example, if you deposit $1,000 into a savings account with a 5% interest rate, compounding annually, you'll earn $50 in interest the first year for a total of $1,050. The next year, you'll earn 5% of $1,050, or $52.50, for a total of $1,102.50.
Suppose you invest $5,000 in a five-year CD paying 5% per year, with no compounding, and you make no additional contributions along the way. You would earn $250 per year, and your $5,000 would become $6,250.
While reaching the $100,000 mark is an admirable achievement, it shouldn't be seen as an end game. Even a six-figure bank account likely won't go far enough in retirement, which could last as long as 30 years.
With £50,000 in Chase Saver with Boosted Rate's easy access account paying 5%, you could earn £2,500.00 over a year, or £208.33 per month.
But over time as you earn interest on a larger sum of money, your balance will increase exponentially. For example, let's say you invest $10,000 in a simple-interest account that earns 5%. You'll earn an estimated $500 in interest and your account will be worth $10,500 after a year.
At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items. This is called the 50/30/20 rule of thumb, and it provides a quick and easy way for you to budget your money.
Compound interest calculation example: If you have $1,000 with a 5% annual rate of interest (0.05), you've earned $50.
The top high-yield savings accounts are currently earning APYs of 5 percent and greater. By comparison, the national average savings account APY is just 0.59 percent. You'll often find the most competitive APYs at online-only banks, which tend to pay higher rates than brick-and-mortar banks.
It's wise (and easy) to move your money from bank accounts that earn little or nothing—another 10 of the best high-yield savings accounts pay at least 5.00%. Though savings account rates can fall at any time, it's always smart to make sure you're earning a competitive APY.
$3,000 X 12 months = $36,000 per year. $36,000 / 6% dividend yield = $600,000. On the other hand, if you're more risk-averse and prefer a portfolio yielding 2%, you'd need to invest $1.8 million to reach the $3,000 per month target: $3,000 X 12 months = $36,000 per year.
What is considered a good and bad return on assets? A good return on assets is in the 10% range. Anything above that is excellent and below 5% is considered harmful.
While there aren't any financial institutions paying 7% on a CD right now, there are other banks and credit unions that pay high CD rates. Compare today's top CD and savings rates.