The break-even test
A higher rate is valuable only when its extra annual interest exceeds unavoidable fees.
A small APY advantage can be erased by a modest fee. Break-even analysis turns the comparison into one balance threshold.
Use the simple screening formula
Break-even balance ≈ annual fee ÷ APY difference. Convert percentage points to decimals before dividing.
Interpret the threshold
Below roughly $24,000, the fee costs more than the additional yield under stable-rate assumptions. Above it, the higher APY may produce more before tax and other conditions.
Savings break-even at a glance
The break-even balance equals the annual fee divided by the difference between the two APYs, using decimal rates and compatible assumptions.
Inputs to carry into the calculation
- Both current APYs on the same basis
- Every unavoidable monthly or annual fee
- Expected balance range rather than only today's balance
Decision around the threshold
Choose the fee account only when the expected balance stays safely above break-even and its access and conditions still fit the goal.
Refine when the decision is close
Model compounding, monthly contributions, fee timing, rate tiers, and fee waivers. The simple formula is a screen, not a final projection.
Check avoidability
If the fee can be waived through a condition you reliably meet without cost, compare both the waived and unwaived cases. Do not assume future compliance automatically.
Check the formula with a complete example
Account A has no fee and a 4.00% APY. Account B has a 4.25% APY and a $5 monthly fee. The APY difference is 0.25 percentage points, or 0.0025 as a decimal. The annual fee is $60. The simple break-even balance is $60 divided by 0.0025, or about $24,000.
Below that balance, the extra yield is smaller than the fee under the screening assumptions. At the threshold, the simple annual advantage and fee are roughly equal. Above it, Account B may lead before taxes, rate changes, compounding details, and other conditions.
Know when the shortcut is not enough
| Complication | Required adjustment |
|---|---|
| Balance changes each month | Project deposits and withdrawals by period |
| Fee can be waived | Model both met and missed conditions |
| APY applies only to a tier | Calculate yield by balance band |
| Promotional rate expires | Split the horizon into promotional and standard periods |
| Rates are variable | Run a lower-rate sensitivity case |
Use break-even as a screening tool. The final decision should also consider access, protection, account maintenance, and whether the condition required to avoid the fee creates another cost.
Interpret the balance threshold
Check that both yield inputs use the same APY basis with APY vs. Interest Rate.
After finding the threshold, compare access rules and the full projected balance through How to Compare Savings Accounts.
Calculate whether the expected balance stays above the fee break-even point in the fee and APY comparison tool.