How much interest can you earn on $40,000 now? Here are 4 options to consider.
Whether it took you years to save up a large sum of money, such as $40,000, or whether it was accumulated fairly quickly via an inheritance, bonus or tax refund, the importance of securing it in a safe and profitable account can't be understated. That's especially true in today's economy, in which inflation is surging again, wages are softening and higher interest rates are continuing to make borrowing problematic. At the same time, that last factor also continues to result in higher returns on a variety of savings vehicles, giving savers multiple options to choose from now.
Interest rates and structures will vary based on the account in question, though. So savers shouldn't assume that they'll earn the same amount of interest with a $40,000 high-yield savings account as they would with a money market account, for example. Certificates of deposit (CDs) and traditional savings account returns will also look different. To better determine which of these four makes the most sense for your money now, it helps to know how much interest you can earn with your $40,000 in each. Below, we'll complete the calculations that savers should know before getting started.
See how much interest you could be earning with a high-rate CD account here.
How much interest can you earn on $40,000 now?
There are four primary savings account types to choose from now. Here's how much interest you could earn by depositing $40,000 into each, should you take action now:
A CD account
CD account interest rates vary by term, or length, of the account. So, for example, with a 3-month CD with a top rate of 3.90%, savers will earn around $385. But with a 1-year CD at a rate of 4.11%, you'll earn $1,644, and with a 2-year CD with a rate of 4.16%, it will be $3,397.22.
In other words, the longer you keep the funds in the CD, the more interest you'll earn, and that interest will be guaranteed thanks to the account's fixed interest rate. You will have to give up access to your funds to earn that rate, however, and you will be issued an early withdrawal penalty for regaining access prematurely, so don't open an account with a deposit or term that you can't comfortably afford to see through to the maturity date.
Learn more about your CD account options online now.
A high-yield savings account
The interest you can earn with a $40,000 high-yield savings account won't just depend on the interest rate and how long you maintain the account; it will also be based on market conditions, as the account has a variable rate that will change over time. So, for example, if today's top high-yield savings account rate of 4.10% holds for the next year, savers will earn $1,640 on their money.
But if the rate declines, they'll earn less. Or, if the rate increases or if they deposit more money (high-yield savings accounts don't have the same accessibility restrictions CDs do), they'll earn more. That said, there is no immediate expectation that rates will decrease, and there's even a small chance that they could rise later this year, making this account one of the better choices for savers who want to maintain access to their money while still earning a competitive rate.
A money market account
With a money market account at a top rate of 3.90%, savers will earn around $385 in three months on their $40,000 or $1,560 by this time next June. The same caveat that applies to high-yield savings accounts, however, applies here. The money market account has a variable rate that can and will fluctuate over time. But with rates here expected to hold steady and with the money market account also offering a check-writing feature that the aforementioned two accounts do not, this could be the smart home for your money now, even if the top rate is slightly lower than what you can get with a high-yield savings or CD account.
A traditional savings account
A traditional savings account is clearly the least profitable option on this list, and leaving $40,000 untouched in this account now will result in a minimal return of just $152 thanks to the account's average rate of 0.38% over the next 12 months. This rate is variable, too, meaning that the return could be higher or lower by next June, assuming the account's funds aren't moved. But with returns on CDs, high-yield savings and money market accounts all exponentially higher and with the latter two allowing savers to maintain access to their funds, a traditional savings account should largely be avoided in today's still-elevated interest rate landscape.
The bottom line
There are multiple, profitable options for your $40,000 this June and in the months that follow … and one account that should largely be avoided. Examine all four carefully, however, before getting started, and don't discount the benefits of splitting your funds among two or even three of these accounts to better take advantage of the unique and timely benefits each provides.
