Checking vs savings
| Checking | Savings | |
|---|---|---|
| What it’s for | Bills, your debit card, your pay | Money you’re not spending yet |
| Interest | Little or none | Some: compare the APY |
| Getting at it | Any time | Easy, but kept apart so it lasts |
Have your pay go into checking, then set up an automatic transfer to savings on payday. Saving first, before you spend, is the easiest way to make saving happen.
What your savings could earn
The APY makes a real difference. A year’s interest at different rates:
Interest in a year, before tax:
| Savings | 0.5% APY | 2% APY | 4% APY | 5% APY |
|---|---|---|---|---|
| $5,000 | $25 | $100 | $200 | $250 |
| $10,000 | $50 | $200 | $400 | $500 |
| $25,000 | $125 | $500 | $1,000 | $1,250 |
| $50,000 | $250 | $1,000 | $2,000 | $2,500 |
| $100,000 | $500 | $2,000 | $4,000 | $5,000 |
Interest is taxed as income. The savings interest calculator shows what you’d keep after tax.
What to look for in a bank
- No monthly fee, or one that’s easy to avoid, for example with direct deposit.
- No overdraft fees. You can ask your bank to decline debit card payments rather than let you go overdrawn.
- A good APY on savings. High-yield savings accounts, mostly at online banks, often pay several times what big banks do. APY includes interest on your interest, so it’s the number to compare.
- Free ATMs near you, or refunds of other banks’ ATM fees.
- Credit unions are owned by their members and often have lower fees. They’re worth a look.
Is my money safe in a bank?
Money in an FDIC-insured bank is protected up to $250,000 per depositor, per bank, for each ownership category (for example, your own accounts and joint accounts count separately). If the bank fails, the FDIC pays you back, usually within days. Credit unions have the same protection from the NCUA.
Look for “Member FDIC”. Investments, crypto and money held by some payment apps aren’t protected this way, even when the app looks like a bank.
Other accounts worth knowing
- Money market account: a savings account that may come with checks or a debit card, insured like other deposits.
- Certificate of deposit (CD): a fixed rate for a set term, from a few months to five years. Taking money out early usually costs some interest.
- Cash accounts at brokerages: often move your money into partner banks for FDIC cover. Check which banks and how much is covered.
Opening an account
You’ll usually need a photo ID, a Social Security number or ITIN, and a US address. Many banks check ChexSystems, a record of past banking problems such as unpaid overdrafts. If it stops you opening an account, ask about a second-chance account, or a basic account with no overdrafts, which many banks and credit unions offer.
Overdrafts and fees
If you spend more than you have, the bank may let the payment through and charge an overdraft fee, often $25 to $35 each time. A few small purchases can cost more than they did. To avoid it:
- Keep a small buffer in checking.
- Turn on low-balance alerts in your bank’s app.
- Link savings to checking for overdraft transfers, which usually cost little or nothing.
What next
Once your accounts are set up, work out where your money goes with a budget, then start an emergency fund in your savings account.