HYSA compound interest calculator: Monthly deposits, APY, and state tax drag

How HYSA compound interest actually works

High-yield savings accounts advertise rates as Annual Percentage Yield (APY), which is the effective annual rate after accounting for compounding frequency. The relationship between APY and APR (the nominal rate):

$$\text{APY} = \left(1 + \frac{r_{\text{nominal}}}{n}\right)^n - 1$$

Where $n$ is the number of compounding periods per year. Most HYSAs compound daily ($n = 365$).

For a 5.0% APR compounded daily: APY = $(1 + 0.05/365)^{365} - 1 = 5.127%$

This 0.127% APY premium over the nominal rate is meaningful on large balances but minor for most savers — the primary factor driving HYSA yield is the base APR, not compounding frequency variations.

For a complete household financial planning framework, see our household capital allocation and debt framework.

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Future value with monthly contributions

The standard compound interest formula with periodic deposits:

$$FV = P \times (1 + r)^n + PMT \times \frac{(1 + r)^n - 1}{r}$$

Where:

• $P$ = initial principal
• $r$ = periodic interest rate (APY / 12 for monthly)
• $n$ = number of periods
• $PMT$ = monthly deposit

Example: $10,000 initial, $500/month, 5.0% APY, 36 months:

$$FV = 10{,}000 \times (1.004167)^{36} + 500 \times \frac{(1.004167)^{36} - 1}{0.004167}$$

$$FV = 10{,}000 \times 1.1614 + 500 \times 38.70 = $11{,}614 + $19{,}350 = $30{,}964$$

Total deposits: $10,000 + (36 × $500) = $28,000 Interest earned: $2,964 (10.6% return on total deposits)

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State income tax drag on HYSA interest

HYSA interest is taxed as ordinary income at both federal and state levels. The real after-tax yield:

$$\text{After-Tax APY} = \text{APY} \times (1 - T_{\text{federal}} - T_{\text{state}})$$

After-tax yield comparison by state at 5.0% APY:

FDIC insurance limits: HYSA balances are FDIC-insured up to $250,000 per depositor per insured institution. For balances over $250,000, distribute across multiple FDIC-insured institutions or use Treasury securities (which carry full faith and credit guarantee without a dollar cap).

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HYSA vs alternatives: Risk-adjusted return comparison

State income tax note: US Treasury interest (T-Bills, T-Notes, I-Bonds) is exempt from state income tax. For residents in high-state-tax states (California, New York, New Jersey), Treasury securities often produce higher after-tax yields than HYSAs with equivalent or lower advertised rates.

Use the HYSA Compound Interest Calculator to model your specific balance, monthly deposit, state tax rate, and time horizon for a precise after-tax future value projection.