It’s important to have a checking account to keep track of your bills and other daily costs, but they don’t usually earn interest.
It’s kind of like putting your money to sleep instead of working for you.
But what if you had an account that worked like a regular bank account but paid you interest?
There are types of checking accounts called high-interest checking accounts that let you earn more interest than regular checking accounts.
They give people a way to save money and grow it, while still having access to their money. The rates on these accounts are also higher than they’ve been in a year because the Fed recently raised rates.
So, what do you need to know about high-interest checking accounts before you open one?
And how do they work?
What is a high-interest checking account?
A high-interest checking account, sometimes called a rewards checking account, is a type of bank account that gives you more money back than regular checking accounts. As an incentive to get people to open these accounts, the interest rates are often higher.
How does a high-interest checking account work?
A high-interest checking account works like a regular checking account, but the interest rate on the money you put in is usually higher.
In general, this is how it works:
Interest rates
Unlike conventional checking accounts, which sometimes pay little or no interest on deposits, high-interest checking accounts provide a greater Annual Percentage Yield (APY). Account holders will be able to earn more interest on their balance, allowing their money to increase over time.
Minimum balance requirement
Most high-interest checking accounts require a minimum balance to obtain the claimed interest rate.
Account holders must maintain this minimum balance to qualify for the higher interest rate. Falling below this amount may result in decreased or no interest for that time, as well as fees.
Usage and access
Typically, these accounts come with regular checking features, including:
- debit cards
- online banking
- check-writing capabilities
- and bill payment services
Some may impose restrictions on the number of transactions or ATM usage to preserve the high-interest rate.
Fees and charges
Certain high-interest checking accounts may have monthly fees, transaction fees, or other related expenditures, even though they often have better interest rates. Account holders need to be aware of these costs and fulfill certain requirements to be exempt.
Comparison with savings accounts: High-interest checking accounts offer more liquidity and easier access to funds compared to these savings alternatives.
How much should you keep in a high-interest checking account?
How much you should keep in a high-interest checking account depends on your spending habits, financial goals, and overall situation.
Here are some things to think about:
Minimum balance requirements
Many high-interest checking accounts have a minimum balance that you need to keep to earn the interest rate that is promoted. To get the most out of the higher interest rate, you must keep at least this minimum amount.
Emergency fund
A lot of financial experts say that you should have enough money saved in an emergency fund to cover your living costs for three to six months. Due to its accessibility and liquidity, your high-yield checking account may be included in this emergency fund.
Daily expenses
Consider maintaining an amount that covers your regular monthly expenses and payments. This ensures easy access to funds for daily needs without worrying about dipping below the minimum balance.
Surplus funds
If you have additional funds beyond your emergency fund and monthly expenses, you might consider investing or allocating them to accounts offering higher interest rates, such as a savings account or investment vehicles like Certificates of Deposit (CDs) or mutual funds.
Overall, the amount of money you keep in a high-interest checking account should be just right for:
- meeting the minimum standards
- having cash on hand for emergencies
- and making the best use of your money to earn the highest interest rates possible
Thinking about your goals and current financial situation regularly will help you figure out how much money you should keep in this type of account.
Advantages of high-yield checking accounts
High-interest checking accounts provide numerous benefits for their users. Let’s have a look at some of them.
- You earn more interest while still having easy access to your money.
- High-yield checking accounts operate like any other bank account. You can get a debit card, write checks, or get cash from ATMs.
- Some high-interest bank accounts will pay for your ATM fees and give you cash back when you buy things.
- Deposits are insured and backed by the Federal Deposit Insurance Corporation (FDIC) also backs these funds.
Disadvantages of high-yield checking accounts
Although high-interest checking accounts provide numerous benefits, it is crucial to also consider their potential drawbacks.
- You could forfeit earning the highest interest rate if you can’t maintain the minimum balance.
- Interest rates may be lower than potential earnings from alternative savings accounts such as high-yield savings accounts or CDs.
Alternatives to high-yield checking accounts
If you are not sold on the idea of getting high-yield checking accounts, there are other options you can try that would allow you to earn while you save. Here’s a closer look at these alternatives:
Money market accounts
The main advantages of savings and checking accounts are also combined in these accounts. You can write checks and make purchases with a debit card and yet receive a healthy return.
However, money market accounts frequently have a monthly cap on the number of withdrawals or transactions you can complete before incurring fees.
Certificates of deposit (CDs)
Depending on the term you select, a CD could yield an even greater return than a high-yield checking account.
But there’s a catch: You must stash your cash away for the entire term, lasting anywhere from six months to five years, or pay a penalty. Typically, the longer the term, the greater your return.
High-yield savings accounts
These accounts are better for consumers looking to stash funds for a rainy day or financial emergency. Accessing your funds is typically more challenging, as transfers may take a few days. Some financial institutions allow you to withdraw cash via an ATM, but there are limitations on the number of withdrawals you can make each month.
Which bank pays the highest interest on checking accounts?
#1. All America Bank Ultimate Rewards Checking
Offering one of the greatest rewards on your checking balance makes All America Bank Ultimate Rewards Checking stand out. By fulfilling the two conditions listed below, account holders can earn 5.05% APY on up to $15,000 (after, 0.50% APY):
- Make at least ten monthly purchases with a debit card.
- Get your bank statements via email.
Those who don’t fulfill the prerequisites will receive 0.25% APY.
#2. The Presidential Bank Advantage Checking Account
The Presidential Bank Advantage Checking account allows account holders can earn 4.625% APY on up to a $25,000 balance (after 3.625%). The requirements to qualify for the highest interest rate include:
- Have at least $500 deposited directly into your bank account every month from a salary, social security, employee benefits, or annuity.
- Include ATM, POS, ACH, and bill payments in at least seven internet withdrawals each month.
Anyone who doesn’t meet those conditions will get 0.10% APY.
#3. SoFi Checking and Savings account
The SoFi Checking and Savings account lets you do all of your banking in one place and gives you rewards. Savers and Vaults members who set up direct payment can earn 3.80% APY on their balances, and checkers can earn 0.50% APY.
People who don’t have direct deposit will get 1.20% APY on their savings and Vault accounts and 0.50% APY on their checking balances.
The bottom line
If you want your money to make you more money, you should think about getting a high-yield bank account.
You can start one quickly and easily. It has many of the same features as regular checking accounts and gives you a better return on your money. But make sure the rules of a high-yield checking account work for you before you open one.
Updated from Nov 23, 2023
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