How do interest rates work for a savings account?

I'm about to get my own bank account. I wanted to get a debit card at first, but a friend told me that if I use a savings account, I can earn interest. But I don't really know how it works. And she doesn't quite know either. Btw I'll be 14 when I get it.
How do interest rates work for a savings account?
Most interest rates at banks are compounded on a regular scale, either daily, monthly, quarterly, or yearly. What that means is that the annual percentage yield (APY) is based off of what you would make in a given year.





For example: let's say you had a savings account with $1000 and a 5% APY (good luck finding one of these now!). Essentially, over a 12-month period, the bank would give you the equivalent of 5% of the total balance if the balance stayed stable ($50 split over the year). So, if you didn't put any more money into the account, and the interest was paid out, let's say quarterly, every 3 months you would get a $12.50 interest payment.





Since most balances are variable (i.e. nobody keeps the same amount of money in the account) and interest changes the principal (once that first $12.50 payment goes in, your NEW balance is $1012.50, and the APY of 5% is based off of THAT, and not $1000 anymore) it can be sort of confusing. The benefit is that you are ALWAYS making money (even if it is only a penny) as long as you have the savings account open.





The downside is that it normally doesn't have as easy access as a checking account (e.g. no check cards usually) unless it is linked to another account (either checking or money market). You can usually get ATM access, but many savings accounts have minimum balance requirements for opening or maintaining.





Good luck.
Reply:i would go to your local credit union and open a christmas account. they have great interest rates, but they will probably limit withdraws from the account. But if you're 14, you should be able to get into the habit of not having so many withdraws anyways.





Good Luck.
Reply:Credit Union interest rates are better then Banks so check them out first and while you are on the internet, put it to use look up your local banks and credit union websites and check out the interest rates I bet credit unions are paying more anyway Take Care and Good Luck