Finding the right checking account that offers flexibility to access your money whenever you want is key, but if it can also pay you interest, that’s a plus.
When you go to a bank or credit union, you have several options when choosing what kind of account you want to open.
Checking accounts are a common choice among people who like to spend money directly from their accounts. Known also as a “spend account,” “deposit account,” and even “share-draft account” at some credit unions, these simple accounts offer the least complicated account opening procedure, allowing you to have a safe and easily accessible place to store and use your money.
Checking accounts that earn interest are real. Finding the right checking account that offers you the flexibility to access your money whenever you want is key, but if it can also pay you interest, that’s a plus. If you want to learn about earning a little extra money based on the balance in your checking account, you have come to the right place.
“Interest-bearing” or “Interest-earning” accounts, sometimes referred to as checking accounts with “dividends,” have a number of benefits. Let's take a look to see if they are the right account type for you.
What is an interest checking account?
A checking account is a basic bank account where you can deposit as much money as you want or need. You can use it for everyday payments without any limits. Usually, a typical checking account does not pay any interest or dividends.
An interest checking account is a special type of checking account that offers a small percentage of interest to be earned based on the deposited amount. (FYI: That amount earned is called a “yield”.) Even though this account usually provides a fairly low interest rate, it attracts many users because of its fluid nature.
With a low annual percentage yield (APY), this type of account also imposes fewer requirements than, say, a money market account. It is more flexible than savings accounts with higher interest rates and more withdrawal restrictions. It is ideal for everyday use or to pay larger amounts at one time.
Interest-earning checking account features
Some of the common features of an interest-bearing checking account include:
- No withdrawal limit
- Easy digital banking options
- Online bill pay
- Earns interest on the account balance
- May have minimum balance requirements
An interest checking account is ideal for you if you want to earn money on your deposited amount without any deposit or withdrawal restrictions.
Several financial institutions also offer high-interest checking accounts, but they usually come with their share of transaction limitations.
How an interest checking account works
With an interest checking account, you can earn a small percentage of profit on your deposited amount. How an interest checking account works is fairly easy to understand if you know how savings accounts work.
This type of account gives you a small profit for keeping money in the bank for a specific period. Being rewarded by earning this interest is the only difference between regular and interest checking accounts. Just like conventional checking accounts, you can use a debit card to make purchases, visit ATMs, bank online, and so on.
Some high-interest checking accounts offer even higher interest rates with more bonuses. However, these kinds of higher-yield interest-bearing checking accounts may be harder to find than typical interest accounts. More importantly, they may come with higher maintenance fees and transaction restrictions.
Your account balance will determine the amount of interest you earn. Restrictions and fees can vary by individual financial institutions and even among an institution’s account options themselves. Therefore, make sure to understand exactly how a particular bank account works before depositing your money.
How to open an interest checking account
Opening an interest checking account is like opening any other bank account. You have to do the same paperwork required for other bank account types. Depending on the financial institution’s online tools, you may even be able to open an account online without ever visiting the physical location. Once your account is created by the bank or credit union, you can use it for everyday transactions.
Each interest checking account notes a specific time period after which you start making a profit on your deposited amount. You may need to meet a few small requirements — like signing up for e-statements and scheduling automatic direct deposits.
Types of interest checking accounts
Interest checking accounts can be further divided into different categories based on different interest rates and transaction restrictions.
Standard interest checking account
A standard interest checking account offers a low-interest rate and has little-to-no minimum deposit requirements. As a result, you can start earning interest on your deposited money right away. These accounts typically permit unlimited transactions and come with low maintenance fees and no deposit limit.
You can generally open this account through any bank, credit union branch, or online money app.
High-yield checking account
A high-interest earning checking account pays a higher APY based on your deposited balance. This higher interest rate often comes with a few more requirements, like higher minimum balances or even a monthly service fee. Your accounts need to be eligible to take advantage of those extra rewards.
With a high-yield account, you may also be restricted by a low withdrawal limit. In exchange, you can make a large monthly profit on your deposited amount. Consider the benefits versus the limitations before opening a high-interest checking account.
It is possible, however, to find a higher-earning checking account that pays interest without requiring a minimum balance, or even a monthly fee. Kasasa rewards checking is one such option that offers multiple ways to earn as you bank.
Pros of an interest checking account
Having an interest checking account comes with several benefits:
- Easy transaction of money
- Suitability for everyday use
- Low (or maybe even no) limitations for withdrawal
- More flexibility than a savings account
- Easy profits
- Online bank options, including mobile deposit
Cons of an interest checking account
There are a few downsides to having an interest checking account that you need to consider:
- Lower interest rates than a savings account (usually)
- In some cases, a minimum deposit limit
- Potential penalties if your account does not have the required balance
- Monthly fee (which could be higher than the interest earned)
Average interest rates for checking accounts
As mentioned above, an interest-bearing checking account rarely earns a relatively high rate when compared to interest-earning savings-type accounts. In fact, the average interest rate of a U.S. checking account is around 0.03% APY — considerably less than the average 0.06% APY interest earned from standard U.S. saving accounts. It also offers you more spending flexibility than a money market account.
Even though you earn less money, the lack of limitations makes this option easier for many people. If you want to keep more money in the account so you can spend without worries about your balance, it may be worth the lower interest rate for that flexibility.
On the other hand, the low-interest rate might be a lot less than monthly and yearly inflation, which makes it unsuitable for those focused on increasing the value of their savings.
Minimum balance requirements of an interest checking account
Standard checking accounts could have a minimum balance requirement but come with a low monthly fee. However, they have no withdrawal limitations, making them ideal for everyday use — As long as you keep the minimum balance, of course.
Most interest-earning checking accounts require a minimum balance that is calculated at the end of each cycle (usually the end of the month) in order to earn interest. Account cycles can vary, however (such as every 30 days) so be sure to read the fine print to make sure you understand precisely how to meet all earning requirements.
Interest checking accounts may require a minimum balance and a minimum deposit each month to take advantage of the profit. You may have to pay a monthly fee if you fail to maintain the minimum balance. (FYI: Free Kasasa checking accounts don’t insist on a minimum balance and have no maintenance fees!)
The minimum balance requirement for most checking accounts is usually not as high as most saving accounts. For some interest checking accounts, you may need to maintain an average balance of $15,000 to waive off monthly fees! Even more — you may have to keep another $10,000 in your bank account to earn the top rate.
Where can you find an interest checking account?
You can easily find many brick and motar banks and credit union branches that offer interest checking accounts, some of which you can even open online. You can also consider a strictly online banking option.
An interest checking account is great for everyday use. You can pay your bills, make debit card purchases, and withdraw money from an ATM using your debit card.
Since this type of bank account has fewer withdrawal restrictions than savings accounts, many people prefer it as the account to both spend and save money. But do be aware that interest rates can vary from account-to-account, and have been seen to earn as low as 0.01% APY — so be sure to check the rates at multiple financial institutions when shopping for an interest checking account.
When choosing an interest checking account, select the one with the highest interest rates or with the least requirements and minimum deposit limits.
Should you get a checking account that pays interest?
This decision depends entirely on your end goal.
if you want to earn a little interest on what's in your checking account on a regular basis and want flexibility when depositing and withdrawing your money, you should consider an interest checking account. If you want to grow capital over time and make money on your money, then an interest checking account may not be for you due to its lower interest rate compared to savings accounts or more risky investments, such as stocks or an individual retirement account (IRA).
Before opening an account, look for a bank that offers a higher interest rate but a low minimum deposit and maximum deposit limit. It will allow you to enjoy this account type's flexibility while earning a small dividend on your money.
Can you earn rewards with everyday checking account transactions?
A high-yield checking account that offers rewards and cash back on spending money can be the ideal rewards checking account for you. For example, if you make frequent payments using your debit card, then this account type could work well for you.
Kasasa offers a free interest checking account to its customers with no monthly maintenance fees and no minimum balance. It also provides a number of ATM withdrawal fee refunds each month.* It can offer these larger rewards due to its design. Requirements such as having a minimum number of debit card purchases every month, choosing e-statements, and signing up for online banking access are all things that lower costs to the institutions.
A good tip for accounts that require a certain number of debit-card purchases each month is to set up automatic payments using your debit card number on regular billing sites. This is often an option for all sorts of bills — from living expenses like utility bills and insurance premiums to monthly credit card balance payments.
Making the move to an interest checking account
When deciding to store your money, make sure to have a clear goal in your head. If your goal is to have more flexibility with your spending than a savings account offers while still earning a little bit of interest on your money, then you should consider opening an interest-earning checking account.
Such an interest-bearing account has its share of pros and cons, which you can weigh before opening an account. The best part is knowing you’ve chosen an account you can be proud of, moving forward with the confidence that you’ve chosen the very best checking account for you.
*Qualifications, limits and other requirements apply. See financial institution for details.