05 · Topic

A bank pays you 0.01% so it can lend your money at 7%.

9 min readTopic: Banking

Key numbers

0.01%Typical big-bank savings rate

4.5%Competitive HYSA, early 2025

$250kFDIC coverage per category

$2MInsurable at one bank, family of four

$900Extra yearly yield on a $20k fund

Net interest margin, the engine

A bank's simplest profit metric is net interest margin (NIM): the difference between the rate it earns on assets (loans it has issued) and the rate it pays on liabilities (deposits). In a normal year that gap is 2.5 to 4%.

Big banks (JPMorgan, BofA, Wells, Citi) ran NIMs of 2.4 to 3.0% through 2024. Online-only banks (Marcus, Ally, SoFi) run lower NIMs because they pay higher deposit rates. They have no branches to fund, so they pass more of the spread back to you to win deposits.

That difference shows up in your account. Big banks pay 0.01% on savings. Online banks pay something close to the fed funds rate minus 0.5%. As of early 2025, the fed funds rate sits around 5.25%, which puts a competitive HYSA at roughly 4.5%.

Indicative yields, early 2025. The difference between the first bar and the last is roughly $1,000/year on $20,000.

Why HYSAs pay more

Three reasons stacked on top of each other:

No branches. Wells Fargo runs 4,500 branches with real estate, staff, security, and utilities. An online bank pays for servers and a marketing budget. The savings get passed to depositors.
Customer acquisition pressure. Online banks are fighting for deposits. The fastest way to win deposits is to pay for them. The top of the HYSA leaderboard rotates as banks chase quarterly deposit growth targets.
Sticky big-bank deposits.80% of a big bank's checking deposits move only when forced. Banks know this and price accordingly. The 20% who move are getting the better deal because the 80% are subsidizing them.

FDIC, per ownership category

FDIC insurance covers $250,000 per depositor, per insured bank, per ownership category. Most people read this as “$250k per bank, full stop.” That is wrong. The ownership categories let a household stack coverage well past the headline.

The main categories:

Single ownership: accounts in one name. $250k.
Joint ownership: accounts held by two or more people. $250k per co-owner.
Revocable trust / POD (payable on death): up to $250k per beneficiary, up to 5 beneficiaries.
Retirement accounts: IRA, certain 401(k) self-directed accounts. $250k.
Business accounts: corporation, partnership, LLC. $250k.

Worked example. A married couple with two kids at one bank can hold:

$250k in his individual savings
$250k in her individual savings
$500k in joint savings ($250k × 2 co-owners)
$250k each in his and her IRA
A revocable trust with both kids as beneficiaries: $500k

Total covered at one bank: $2,000,000. None of this is a loophole. It is the rule. The FDIC publishes the EDIE calculator (fdic.gov) to confirm before relying on it.

SVB, 2023, in one sentence

Silicon Valley Bank failed because depositors withdrew faster than the bank could sell long-duration bonds without realizing losses. 93% of SVB deposits were over the FDIC limit. The federal government covered everyone anyway, but the lesson stuck. Sophisticated treasurers now actively manage cash across FDIC limits.

ACH, wire, RTP: three rails, three speed and cost profiles

ACH (Automated Clearing House)

Batch-processed, settles in 1 to 3 business days. Effectively free, and most banks include it. The rail behind direct deposit, Venmo cash-out, and every utility autopay. Reversible for 60 days for unauthorized transactions, which is why landlords sometimes refuse it for rent.

Wire

Settles same-day, typically within hours. Costs $15 (incoming) to $35 (outgoing) at most banks. Effectively irreversible once it lands. Required for real estate closings, large business payments, and anywhere a counterparty needs cleared funds today.

RTP (Real-Time Payments) and FedNow

Settles in seconds, runs 24/7. Final on receipt. Built and operated by The Clearing House (RTP, launched 2017) and the Federal Reserve (FedNow, launched 2023). Adoption is still spreading, and Zelle uses these rails behind the scenes at member banks. Expect this to replace most personal ACH in five years.

Float and the available-vs-current distinction

Your current balance is the ledger total. Your available balance is the ledger total minus authorized-but-unsettled charges (a hotel deposit, a gas pump pre-auth, a pending Venmo transfer). The two numbers can differ by thousands of dollars on a busy weekend.

Banks earn float by sitting on the gap between when a transaction authorizes and when it settles. They also use the spread between available and current balance to charge overdraft fees on customers who spend against the higher number. Several large banks have eliminated overdraft fees in the last three years (Capital One, Ally, Citi); the rest charge $25 to $35 per overdraft.

Practical rule: spend from available balance. Set up a $100 buffer in checking that you do not count as available. The buffer pays for itself the first time a forgotten pre-auth would have triggered an overdraft.

How to actually set up your banking

One checking at any bank with a good app. The rate does not matter; this account holds 1 to 2 months of expenses and pays bills.
One HYSA at an online bank with a competitive rate. Auto-transfer your emergency fund here. Earn the fed funds rate.
One brokerage for taxable investing (Fidelity, Schwab, Vanguard, all free, all comparable).
One IRA at the same brokerage. Roth or traditional per the taxes page.
One credit card with no annual fee, autopay minimum on, set to your daily-spend card. Pay in full monthly.

Five accounts. Sixty minutes of paperwork. Most adults run their whole financial life on some variant of this layout for the next forty years.

Common mistakes

01Leaving an emergency fund in checking that pays 0.01%. The same dollars in a high-yield savings account earn the prevailing fed funds rate minus a small spread, about 4.5% in early 2025. On $20,000 of emergency fund, that is $900 a year for moving the money once.
02Believing your full account balance is available. The 'available balance' subtracts pending charges. The 'current balance' does not. Spending from current balance is how people overdraft on a Tuesday after a Sunday charge clears late.
03Sending a wire when ACH would have worked. Wires cost $25–35 and arrive in hours. ACH is free and arrives in 1–3 business days. For anything that is not a real estate closing, ACH is fine.
04Holding more than $250k at one bank in one ownership category and assuming it is insured. The FDIC ceiling is per category, not per account. Two checking accounts at the same bank both held individually share the same $250k limit.
05Joining a credit union once and never comparing rates again. Credit union rates are often better than big banks but worse than online HYSAs. The optimization is not 'credit union vs bank'. It is 'comparison shop every 18 months'.

FAQ

Is my money safe in an online-only bank?+

Yes, as long as the bank is FDIC insured, which the major online banks are. Your deposits carry the same $250,000 per-category coverage as a deposit at any branch bank. Check the bank's FDIC certificate number on fdic.gov before you fund the account.

How do I cover more than $250,000 at a single bank?+

Spread the money across ownership categories. A single account, a joint account, an IRA, and a revocable trust each get their own $250,000 limit. A married couple with two kids can insure up to $2,000,000 at one bank this way.

Should I use a wire or an ACH transfer?+

Use ACH for almost everything. It is free and settles in one to three business days. Pay the $25 to $35 wire fee only when funds must clear the same day, such as a real estate closing.

Why is my available balance lower than my current balance?+

The available balance subtracts charges that have been authorized but not yet settled, such as a gas-pump pre-authorization or a hotel hold. Spend from the available number so a pending charge does not push you into an overdraft.