How Savings Grow
Your savings grow through two mechanisms: your regular deposits and compound interest. Interest is earned not just on your deposits, but also on previously earned interest — the "compounding" effect that accelerates growth over time.
APR vs. APY
- APR (Annual Percentage Rate): The nominal interest rate without compounding
- APY (Annual Percentage Yield): The effective rate including compounding. APY is always equal to or higher than APR.
Where to Save (2026 Rates)
- High-yield savings accounts: 4.0-5.0% APY — best for emergency funds
- CDs (Certificates of Deposit): 4.0-5.0% APY — fixed rates, locked periods
- Money market accounts: 3.5-4.5% APY — higher minimums, check-writing
- Regular savings accounts: 0.01-0.5% APY — avoid these!
Frequently Asked Questions
How much should I save each month? The 50/30/20 rule suggests 20% of after-tax income for savings. Start with whatever you can and increase over time.
Is my savings account FDIC insured? Yes, deposits at FDIC-insured banks are protected up to $250,000 per depositor, per bank.
How much do I need for an emergency fund? Financial experts recommend 3-6 months of essential expenses in an easily accessible savings account.