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Although saving $1,000 might sound like small potatoes to some people, it's a huge accomplishment for others. And the best way to celebrate that accomplishment is to make sure that money can keep working -- keep growing -- for you.
The simplest course of action is to place your $1,000 into a savings account . This can be a great option, especially if you need access to the money going forward.
However, the type of savings account you choose will have a huge impact on how much you can earn. Let's take a look at the numbers.
If you have a high-yield savings account
The best savings accounts will be high-yield accounts with competitive interest rates. Right now, you can find high-yield savings accounts with APYs over 5.00%, which is historically very good.
Here's how much you'd earn on $1,000 in one year in a high-yield savings account at a variety of different APYs:
| APY | 4.50% | 4.75% | 5.00% | 5.25% | 5.50% |
|---|
| End balance | $1,045.84 | $1,048.55 | $1,051.16 | $1,053.78 | $1,027.82 |
| Total interest | $45.84 | $48.55 | $51.16 | $53.78 | $56.41 |
Data source: Author's calculations.
These calculations assume you aren't touching that $1,000 -- or adding any more to it. If you keep saving over the year, you'll earn even more as your balance continues to compound.
If you have an average savings account
While your $1,000 could grow a decent amount in a great high-yield savings account, you're not going to see much of a return if you have an "average" savings account. The national average interest rate on savings accounts is a sad 0.46%.
What's worse is that average means many accounts pay out far, far less. Many big banks have accounts with interest rates as low as 0.01%.
Here's what you'd earn after one year in an account with a more typical rate:
| APY | 0.01% | 0.04% | 0.10% | 0.50% | 1.00% |
|---|
| End balance | $1,000.10 | $1,000.40 | $1,001.00 | $1,005.01 | $1,010.05 |
| Total interest | $0.10 | $0.40 | $1.00 | $5.01 | $10.05 |
Data source: Author's calculations
As you can see, if you have an average savings account -- it's time to switch.
Other places to put $1,000
High-yield savings accounts are good places to keep your savings, but they have pros and cons alike. Here are some other places you could put $1,000 to make it grow.
Money market account
A good high-yield money market has the benefits of a savings account, with a few extras that make it easier to access your money: ATM/debit cards and check-writing abilities.
I think money market accounts are the best place to keep savings you might need immediate access to, such as your emergency fund.
Certificate of deposit (CD)
It's all but certain that the Fed cuts rates this month, and experts expect more cuts later in the year. A lot of interest-paying products base rates at least somewhat on the federal funds rate, so savings account APYs could see a dip.
Certificates of deposit , or CDs, are a good way to lock in current high rates for the life of the CD. You can get short-term CDs -- as short as six months -- as well as longer-term CDs as long as five or 10 years.
The upside is you can get about the same interest rate, depending on your CD term. The downside is there are expensive penalties if you need to withdraw your money before the CD matures.
Retirement or investment account
If you're certain you don't -- and won't -- need your $1,000 anytime soon, then it could be a good time to start, or add to, a retirement account. The earlier you start investing for retirement, the more money you'll have when it's time.
If you're already maxing out your retirement contributions, then consider opening an individual brokerage account . You can invest in anything you like, from index funds to individual stocks. (Look for new account bonuses, as many brokerages offer them!)
There are a lot of ways you can celebrate saving up $1,000. Savings accounts are the baseline option you should use, and they can earn well, but they're not the only choice. Choose what's best for your own financial situation.
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