$
%
The yearly rate the bank quotes
$
Interest you keep
$312.00
After 1 year at 4% APY
- Balance at the end
- $10,312
- Tax on the interest
- $88.00
- Money you put in$10,000
- Interest you keep$312
- Tax$88
What this means
After tax, your savings earn about 3.12% a year. With prices rising around 2.5% a year, that’s about 0.6% a year more than inflation.
Shopping around pays: a rate just 0.5% higher would earn you $39.00 more after tax over 1 year.
Interest is taxed as ordinary income at your federal bracket, and by most states too. Interest on US Treasuries is free of state tax.
Breakdown
| Period | Interest | Tax | Balance |
|---|---|---|---|
| 1 year | $400.00 | $88.00 | $10,312 |
What a better rate is worth
- 3%$234.00 after tax
- 3.5%$273.00 after tax
- 4%$312.00 after tax
- 4.5%$351.00 after tax
- 5%$390.00 after tax
Assumptions in this estimate
- The rate stays the same for the whole period. Savings account rates can change at any time; fixed-term rates are set when you open the account.
- Savings accounts add interest monthly. A CD adds it at the end of the term, or each year on terms over a year.
- Tax is worked out on each year’s interest and taken from the balance, as when tax is deducted at source.
- Money added each month goes in at the end of the month.