You may have recently moved $10,000 out of the stock market, an underperforming investment, or into an emergency fund. In any case, you need that money to continue earning more for yourself.
Consider depositing $10,000 in an interest-bearing account. The amount you earn depends on the financial asset and institution you select. When calculating the amount of interest $10,000 can earn in a year, four financial assets must be considered: SSeries I Savings Bondsinclude certiHigh-yield savings accountseld saMoney Market Accountsoney market accounts.
How much interest does $10,000 earn each year?
If you have $10,000 to leave in a CD, high-yield savings account, money market account, or Series I savings bond this year and interest rates remain high (3.00% to 6.89% annual percentage yield), you can earn between $300 and $700 in interest over the next year. Here is a look at the current interest rates for these assets.
Series I Savings Bonds
Series I savings bonds issued by the United States government are financial securities with a variable inflation rate set twice a year and a fixed interest rate. The current combined rate is 5.27% for bonds issued between November 1, 2023 and April 30, 2024.
If you invest $10,000 in I bonds, you can expect to earn around $527 this year, assuming the bond’s variable inflation rate remains stable.
CDs
Many financial institutions currently provide attractive CD rates. If you invest $10,000 in a 1-year CD, you can earn between 4.15% and 5.00%, or $415 to $500, depending on the bank or credit union.
CDs have the advantage of guaranteeing your APY for a fixed term, as opposed to other accounts and bonds, which change their rates as the federal funds rate rises or falls.
High-Yield Savings Accounts
If you deposit $10,000 into a high-yield savings account, you can earn $300 to $420 per year, assuming your variable high-yield savings rate stays above 3.00%. Several banks are offering rates ranging from 4.35% to 5.27% APY.
Money Market Accounts
Money market accounts earn slightly less than high-yield savings accounts. However, some currently have interest rates ranging from 3.25% to 5.46%. So, your $10,000 could earn between $325 and $546 in interest this year.
How To Calculate Annual Interest
Calculating yearly interest is a simple process, especially when you start with a set amount, such as $10,000. The key is to understand the interest rate and the fundamental formula for calculating simple interest. Here’s how you can accomplish it:
- Know your principal amount. This is the initial sum of money you’re starting with. In this case, it’s $10,000.
- Understand the interest rate. Interest rates are usually given as an annual percentage. For example, if a bank offers a 3% interest rate on a savings account, it means that for every $100, you’ll earn $3 in interest per year.
- Use the simple interest formula. The formula to calculate interest is: interest = principal. – Rate ? – Time.
In this formula, the principal is the amount you’re starting with ($10,000), the rate is the annual interest rate (expressed as a decimal), and time is the duration in years.
- Calculate the interest. For example, if you have $10,000 at a 3% interest rate for one year, you would calculate the interest as follows: $10,000 + 0.03 + 1 = $30. This means you would earn $300 in interest over one year.
- Adjust for different scenarios. You can use this formula to calculate the interest for different rates and time periods. Just plug in the new rate or change the time period to get your answer.
Remember that this method calculates simple interest, which means interest earned solely on the principal amount. Some investments may use compound interest, which means you earn interest on both the principal and previously earned interest, potentially leading to higher returns over time.
Takeaway
The good news is that you have several options for earning at least 3.0% interest. A money market or high-yield savings account provides easier access to your funds, but typically earns less than CDs or I bonds. Before selecting a financial asset or institution, think about the fees, withdrawal restrictions, penalties, and interest rates.