Banking basics
A bank is a place for plumbing, not for money. What the three accounts are for, what FDIC covers, and the fees that tell you how a bank thinks about you.
A plain-language reference, not advice. Describes how retail banking products work in the US and what to look for. No institutions are named or recommended. Interest rates are deliberately left out because they change monthly; the FDIC coverage limit is stated and flagged for confirmation.
Part of Financial 101 — free, plain-language reference guides. Not personalised advice. Download the one-page Order of Operations checklist.
What a bank is actually selling you
Start from the bank’s side of the table. A bank takes deposits, pays you a little for them, lends them out at more, and keeps the spread. Everything else it offers you exists to widen that spread or to hold onto your deposits: the overdraft program, the “relationship” rate on a mortgage, the credit card offer that arrives two weeks after you open a checking account, the branch adviser who would like to talk to you about an annuity. None of this is sinister. It is just useful to know that the people who work there are paid to gather and keep deposits, not to maximise the return on yours.
Once you see it that way, the goal is obvious. You want a bank for the plumbing — direct deposit, bill pay, a debit card, the occasional cashier’s check — and you want to keep as little money in it as the plumbing requires.
The three accounts most people need
Checking. Where pay lands and bills leave. It should be free: no monthly fee, no minimum balance to waive the fee, no charge for a debit card. Free checking is common enough that paying for it is a choice. Keep one to two months of spending here and no more. Interest on checking is generally negligible, and a large balance is just money sitting in the bank’s cheapest funding source.
High-yield savings. Where your emergency fund and any short-term savings live. Online banks pay meaningfully more than the traditional ones because they have no branches to pay for, and the difference is not small — often many times the rate a big branch bank offers. Money moves between checking and savings in a day or two. That small delay is a feature; it makes the savings harder to spend by accident.
Something for money you will not touch for years. That is not a bank account at all. It is an IRA, a 401(k), or a brokerage account holding index funds. Banks will happily sell you a CD or a savings product for that money. For horizons past a few years, a diversified portfolio has historically done far better.
FDIC insurance, briefly
Deposits at an FDIC-insured bank are federally insured up to $250,000 per depositor, per bank, per ownership category. Joint accounts and retirement accounts count separately. Credit unions have equivalent coverage through the NCUA. Check the institution is actually insured — some fintech apps sit on top of partner banks and the details of how your money is held can matter. If you are lucky enough to hold more than the limit in cash, spread it across institutions or ownership categories.
Fees worth understanding
Overdraft. The bank pays a transaction your balance cannot cover, then charges you a fee for the privilege. Some banks have dropped or reduced these; many have not. Turn off overdraft “protection” on debit transactions so the card simply declines, and link savings to checking as the backstop instead.
Monthly maintenance. Avoidable. If your bank charges one and the waiver conditions are annoying, move.
Out-of-network ATM. Two fees, one from each bank. Some online banks reimburse them; otherwise plan withdrawals.
Wire fees, paper statement fees, inactivity fees. Small individually. The pattern is what matters: a bank that nickel-and-dimes on the small things is telling you how it thinks about you.
Credit unions and online banks
Credit unions are member-owned, which tends to mean lower fees and better loan rates, sometimes with a smaller branch footprint and less polished apps. Online-only banks trade the branch entirely for higher savings rates. A common setup, and a good one, is a local credit union or big bank for checking and cash access plus an online bank for savings. Two institutions, two logins, materially more interest.
Common mistakes
Keeping the emergency fund in checking, earning nothing. Staying with a bank out of inertia while it charges fees a competitor waived years ago. Buying investment products at the branch because it was convenient. Opening a savings account at the same big bank as your checking, then discovering the rate is a rounding error.
Checklist
Free checking with no minimum · Overdraft on debit turned off · Emergency fund in a separate high-yield account · Both institutions FDIC or NCUA insured · Long-term money in investment accounts, not bank products · Fee schedule read once, then reviewed yearly.
Related: Emergency fund · Credit cards · Financial 101
Verification queue
Check each of these before publishing, then delete this block.
- FDIC coverage limit ($250,000 per depositor, per bank, per ownership category) — confirm current figure and wording on fdic.gov; same for NCUA.
- The claim that online banks often pay ‘many times’ branch-bank savings rates — spot-check against current published rates before keeping the phrasing.
- Overdraft fee landscape (some banks have reduced or eliminated) — confirm with a recent CFPB or Bankrate summary if you add specifics.
- Fintech/partner-bank deposit arrangements — if you name the risk more specifically, cite the relevant FDIC guidance.
One essay a week. No stock picks.
Sent Sunday morning. Unsubscribe link at the top of every email.