Almost a year ago I moved $1,000 into one high yield savings account and set up regular automatic transfers from my checking account. My goal was to double my savings before the end of 2024 without having to budget or make big sacrifices.

I am happy to report that the magic i compound interest helped I reach my goal.

Compound interest can be both good and bad. When you save money with a savings accountis compound interest on your side, helping to accelerate the growth of your dollars. But if you borrow money or have debts, as with a credit cards with high interest ratescompound interest works against you.

When we understand compound interest, we can make better decisions about how to save and spend money. Although the Federal Reserve begins lower interest ratesit’s still a good time for savers to take advantage of automating deposits into a high-yield savings account. That’s how I doubled my savings in just one year without lifting a finger.

Understand compound interest

First, let’s get our definitions straight. Albert Einstein called compound interest the “eighth wonder of the world.” Anyone who understands compound interest earns it. Anyone who doesn’t understand compound interest pays it.

When you deposit money into an account that earns compound interest, you don’t just earn interest on your initial deposit amount (known as the principal amount). Your interest also earns interest, which increases your account balance. However, simple interest only applies to the principal.

In other words, compound interest is a powerful and simple way to increase the value of your savings. But you need the right one savings account, money market account or investment tools, such as a certificate of deposit.

Read more: How savings interest works

Go with a high yield savings account

Saving money in a high-yield savings account is a low-risk way to take advantage of compound interest and maximize growth potential of your returns.

Look for the percentage attached to the APY, or the annual percentage rate of return. The best high yield savings accounts currently earning APY as high as 5.25%, more than 10 times as much the national average of the savings account’s interest, which is 0.45%.

Let’s say you deposit $1,000 into a high yield account that earns a 5% annual percentage return and pays interest daily: You’d end up with a balance of about $1,051 in a year without making any additional contributions. Assuming the same 5% APY is applied to your new balance, you’d end up with $1,105 after the second year. And so on.

The higher the balance in an account, the more you earn in interest. Say you deposit $10,000 into the same high-yield account with a 5% APY compounded daily. You will have approximately $10,513 at the end of one year. That breaks down to nearly $43 in extra cash each month toward your savings goal.

Starting my savings journey

In December last year, I opened a high-yield savings account with Ally which at the time had an APY of 4.35%. Today, Ally’s HYSA earns an APY of 4.00%. Compare that to my previous savings account at my local credit union, which earned a paltry 0.01% APY.

Generally, online banking consistently offer better APYs on savings accounts because they have fewer overheads than banks with brick-and-mortar branches.

Here’s the interest rate for each account after one year based solely on an initial $1,000 deposit:

That’s an extra $40 just for parking savings in a higher yielding account. However, keep in mind that savings accounts earn a variable interest rate, which means the APY can change at any time. Variable interest rates can be unpredictable, but interest rates on top-yielding savings accounts are expected to remain high for a while.

3 simple steps to double your savings in a year

Small steps are still steps in the right direction. You don’t need to set aside $100,000 to make noticeable gains with your savings. Here’s what to do.

Deposit $1,000 (or any amount) into a high yield savings account

Start by depositing $1,000 or an appropriate amount into a high-yield savings account that earns 4% to 5% APY. Ally’s High Yield Savings Account currently earns 4.00% APY, but you can find savings accounts with rates as high as 5.25% APY. Make sure your initial deposit is a comfortable number that you can put aside for at least a year without needing to withdraw it for daily expenses.

Set up automatic transfers of $25 per week

Set to automatic recurring transfers to move money into your savings account on a weekly, monthly or quarterly schedule that works for your finances. Automating your contributions is a way to “set it and forget it.” You’ll never need to manually deposit money into your account, and your savings will still grow consistently.

In my case, I set up a recurring automatic transfer of $100 from my checking account to my Ally savings account every month, which is $25 per week. It was a reasonable amount based on my income, debt and expenses, but the exact amount you set aside depends on your budget.

See your balance twice

Since interest rates are volatile and likely to decline now that the Fed has issued two rate cuts, keep an eye on your contributions and adjust your forecasts when the time is right. Fortunately, savings rates won’t drop overnight.

In my case, over the past year, the APY on my Ally account dropped from 4.35% to 4.00%. Because the change in APY was minimal, I didn’t have to change my savings to reach my goal.

After a year, my $1,000 turned into about $2,265. Not too bad.

Interest compounding daily versus monthly

How often your fixed interest rates determine how fast your capital balance grows. Banks and credit unions can compound interest annually, monthly or daily. Most high-yield savings accounts earn interest daily and pay it out monthly.

Although interest compounded daily may give you greater returns than interest compounded monthly or annually, the difference is not significant. For your savings to grow, the more important factors are the APY and the length of time you save.

Let’s look at how interest compounded daily versus monthly can affect your savings:

What more to know about compound interest

When compound interest applies to your savings, you’ll be able to get more value over time, even if you always have to factor in APY and how long you invest. If the APY on your account is well below 1%, the interest will only add up to a few extra pennies.

Keep in mind that any interest you earn from a savings account is considered taxable income by the IRS. When tax season rolls around, you must include the interest you earned for the filing year on your federal declaration.

If you want to increase your wealth significantly, this savings strategy may be too “G-rated” for you. Investing your money in the stock market can give you greater returns in the long run, but you need to evaluate your risk tolerance.

Set it and forget it

I am quite vocal about my journey pay off student loan debt and learn new ways to save while juggling debt. It’s all about finding the right balance for your financial situation.

While high interest rates mean it’s not a good time to be a borrower, it’s still a good time to save. Take advantage of the power of compound interest while savings account APYs are high. The sooner you do it, the more interest you get.

Einstein was right.