Most people have a checking account to hold the money they spend on a daily basis. Since most transactions happen electronically, it’s much easier to use a checking account and check card than it is to carry around cash.
It would be an added bonus to earn interest on the balance you keep in your checking account. But it’s not as easy to earn interest on a checking account as with other types of bank accounts.
Checking Account Interest Rates
Interest rates on checking accounts are typically the lowest of all interest rates offered by banks. It’s not odd to see a checking account rate as low as .05% or even .01%. Yes, that’s a fraction of a percent. On a $1,000 balance at .05%, you would earn just five cents interest in a year.
Not all banks have such low interest rates on checking accounts. Some online banks have higher checking account rates, but rarely are checking account rates as high as CD rates. Banks that do offer high checking account rates may have high minimum balance requirements or other requirements to get earn the highest interest rate.
Minimum Balance or Monthly Fee
Many interest-bearing checking accounts also charge a monthly or annual fee. There’s a huge drawback to paying this fee. Unless you have a great interest rate, a high balance, or both, checking account fees will consume the interest you earn.
Some banks will waive fees on checking accounts, but you have to meet a certain requirement. Often you’ll have to maintain a certain balance on the account. The balance could be as low as $1,000 or as much as $100,000 depending on the bank and the account. (Note: The minimum balance to avoid the monthly fee may be different and higher than the minimum balance to open the account.) Some banks may let you avoid the fee by receiving at least one direct deposit to your account each month.
Highest Rate Requirements
Besides carrying a minimum balance or having direct deposit, the bank may have other requirements for you to earn interest on your balance. For example, you may have to make a certain number of debit card transactions, receive electronic statements, or set up an automatic debit from your account. If you don’t meet all the bank’s requirements in a particular month, your balance may earn a significantly lower interest rate.
It’s All in the Details
If you sign up for an interest-bearing checking account, make sure you read the disclosures to learn what interest rate you’ll receive and what you have to do to earn that interest rate. Be wary of minimum balance requirements that you can’t afford. You may be able to some money in a high-interest rate savings account or CD to earn more interest.