Is your savings account costing you money?

A 0.5% account is not free — it’s expensive

A savings account that pays 0.5% interest looks free. There’s no monthly fee, no charge to open, no penalty to leave. So a lot of money sits in low-rate accounts for years on end without anyone questioning it.

But “free” misses the point. The relevant question is not what the account charges — it’s what the account earns compared to readily available alternatives. The gap between a 0.5% account and a 4.5% account isn’t a couple of dollars. Over realistic horizons it’s hundreds or thousands. That gap is opportunity cost — the money you don’t earn because your funds are sitting somewhere they shouldn’t be.

A simple comparison

Take $10,000 left in two different accounts for 5 years, both with monthly compounding and no fees:

• Account A at 0.5% APR grows to about $10,253 — earning roughly $253 over five years.
• Account B at 4.5% APR grows to about $12,520 — earning roughly $2,520.

The difference is $2,267 — money the saver simply did not earn by leaving the funds in the lower-rate account. Nothing else was different. Same starting balance, same horizon, same compounding mechanics. The only difference was the rate, and the gap is bigger than many savers think.

For larger balances or longer horizons, the gap scales linearly with starting balance and roughly proportionally with time. $50,000 over 10 years at the same rate spread compounds into a five-figure opportunity cost.

Why compounding frequency matters

Two accounts at the same headline rate can produce different final balances depending on how often they compound. Daily compounding produces more growth than monthly, which produces more than quarterly, which produces more than annual. The differences are small in any single year — but compound across 5 or 10 years and they become noticeable.

A 4% APR compounded daily on $10,000 for 5 years produces approximately $12,213. The same APR compounded annually produces $12,167 — about $46 less. It’s a small effect on its own, but it’s a real effect, and worth checking when comparing two otherwise-similar offers.

The shortcut: compounding frequency only matters when you’re choosing between accounts at the same headline rate. When the rate gap is bigger than a fraction of a percent, the rate dominates and the compounding cadence is a footnote.

Fees flip the comparison

A 4.5% account with a $10/month fee is not the same as a 4.5% account with no fee. Fees compound against you in the same way interest compounds for you — every month they leave the account, never to grow.

A $5,000 balance earning 4.5% but paying a $10 monthly fee earns about $1,151 in interest over 5 years and pays $600 in fees, for a net gain of $551. The same balance at the same rate with no fees nets $1,151 — twice as much. Net gain (interest minus fees) is the figure that decides — not the headline rate.

How to use a comparison calculator well

A side-by-side calculator solves the comparison problem cleanly. Three habits make it most useful:

1. Use your own rates. No bank-name lists, no live API quotes, no “best of” rankings. Enter the rates you actually qualify for, including any introductory bonus expirations.
2. Account for fees. A free account at a lower rate often beats a fee-charging account at a higher rate. The maths surfaces this; intuition usually misses it.
3. Compare both interest earned AND net gain. Some accounts look great by interest but lose ground after fees. The comparison should always end on net.

Switching costs

A common reason savers stay in low-rate accounts is the friction of switching. New account application, identity verification, transfer setup, sometimes a few-day delay before funds arrive. It’s annoying. But the friction has an end-date — usually one to two weeks — and the payoff continues for years.

If a switch unlocks a 4-percentage-point rate increase on $25,000, the additional interest in the first year alone is roughly $1,000. Two weeks of admin for $1,000 is a $4,000+ annualised hourly rate, every year that the higher rate persists.

What this calculator doesn’t do

It doesn’t tell you which bank to use, doesn’t query live rates, and doesn’t recommend products. The market changes too fast and the right product depends on your specific situation — the relationship you have with your current bank, the features you need (offset, fee-free withdrawals, etc.), and the local regulatory and deposit-protection landscape.

What it does is the maths cleanly and honestly. You bring the rates and fees you’re considering; it shows you the dollar consequence over time.

Run the comparison

Use our savings account comparison calculator to put up to four accounts side by side. Enter rates, fees, and compounding cadences from the offers you’re actually evaluating. The dollar gap between best and worst is the cost of the wrong choice — and the upside of the right one.