Banking vocabulary, all you will need to know (part II)

5. Overdraft fee:

A fee bank charges when you spend more than what you have in your checking account. The average overdraft fee could be anywhere from €10 to €40.

6. Savings account:

These are bank accounts that earn interest. The savings account is designed to hold money you don’t plan to spend immediately, but rather save for specific purposes and goals. For example, you may open a saving account to hold your emergency funds, or childrens school expenses when they grow up. When you create a savings account with a bank, you agree to let them hold onto your money - in return, you receive a small interest payment each month. 

For example, let’s say that you made an initial deposit of €10,000, and your bank compounds interest annually. With a 1% APY*, you’d earn about €100 in interest for the year. However, with a high-yield savings account with an APY of 4%, you’d make about €400 for the year. Then, your new balance (either ($10,000 x 0.01 = $100) €10,010 or ($10,000 x 0.04 = $400) €10,400) would start to earn interest. If you have a shorter compounding period, your money will grow faster (Bankate, 2024).

*APY (Annual Percentage Yield): is the rate of interest earned on a savings or investment account in one year, and it includes compound interest.