Content provided by Bankrate.com. New York Post and its content partners earn compensation from the affiliate companies that appear below. This content does not include all available financial offers, and compensation may impact how and where links appear in the content.
Tired of your money just sitting in your checking account collecting dust?
While checking accounts are essential for managing bills and everyday expenses, there’s one big problem: They rarely offer any interest. It’s like letting your money hibernate instead of working for you.
But imagine if you had an account offering the same features as a traditional checking account, but with interest.
High-interest checking accounts — also known as high-yield checking accounts — come with attractive interest rates to help you maximize your dollars. Plus, due to the recent Fed hikes, the rates on these accounts are higher than they’ve been in years.
Here’s an overview of how high-interest checking accounts work and why opening one could be a smart financial move.
What is a high-interest checking account?
High-interest checking accounts offer the benefits of both checking and high-yield savings accounts. These accounts provide easy access to your funds and the opportunity to earn competitive interest rates.
Most traditional checking accounts offer interest rates of around 0.01%. On the other hand, some of today’s best high-interest checking accounts offer interest rates over 5%.
To qualify for this higher interest rate, banks often require you to meet specific requirements, including:
- Maintaining a minimum daily balance
- Enrolling in online banking and electronic statements
- Completing a specific number of debit card transactions each month
- Receiving one or more monthly direct deposits
- Opening another financial product (like a credit card) from the same financial institution
You could incur monthly maintenance fees if you fail to meet one or more of these conditions.
Some financial institutions also have minimum balance requirements to earn the maximum interest rate. There could also be a limit to the amount of money eligible for the maximum interest rate. Online banks are often more lenient with the minimum balance guidelines. They also offer higher interest rates than traditional banks and credit unions.
Remember that your account’s interest rate is variable and may change based on market conditions.
Advantages of high-yield checking accounts
The key advantage of a high-interest checking account is the ability to earn higher interest while still having easy access to your funds. You can use a debit card, write checks, or withdraw money from ATMs, just like any other checking account.
Some high-interest checking accounts offer ATM fee reimbursements and cash back rewards on purchases.
These accounts are also typically insured by the Federal Deposit Insurance Corporation (FDIC). This means your deposits are protected up to a specific limit, providing peace of mind.
Cons of high-yield checking accounts
While high-interest checking accounts offer lots of advantages, there are also drawbacks to be aware of. The biggest consideration is making sure you meet the account requirements.
If you fail to do so, you’ll likely miss out on earning the maximum interest rate and may pay maintenance fees. Interest checking accounts have average monthly fees of $16.19 — almost triple the average fee for non-interest bearing checking accounts, according to a recent Bankrate survey.
Although these accounts offer higher rates than regular checking accounts, their rates may be lower than what you could earn with other savings accounts. If you’re looking for the highest possible return on your money, it’s worth exploring other options like high-yield savings accounts or CDs.
Should I open a high-yield checking account?
“It is important to think about your needs. Can you follow the rules to get the higher interest
rate? What’s more important to you: having your money easy to reach or earning the highest interest possible? Shop around and look at different banks to find the best deal for you,” says Sherman Standberry, certified public accountant and managing partner at My CPA Coach.
Here are a few questions to ponder when deciding if you should open a high-yield checking account:
- How much money do I plan to deposit?
- Can I meet the account requirements?
- How does the interest rate compare to other options?
- Are in-network ATMs easily accessible?
- What fees are associated with this account?
- How frequently do I need to access my money?
- Is there a brick-and-mortar branch nearby?
- Does the financial institution offer a user-friendly mobile app?
“If you maintain a sizable balance in your checking account and prefer liquidity, [a high-yield checking account] can be a great fit. However, a traditional checking account might be more suitable if you often carry a low balance or make many transactions,” says Ross Loehr, certified financial planner with The Sovereign Investor.
Alternatives to high-yield checking accounts
If you aren’t sold on opening a high-yield checking account, you have other options. Money market accounts, high-yield savings accounts, or certificates of deposit (CD) may work better for you. Here’s a closer look at these alternatives:
- Money market accounts: These accounts also combine the key benefits of checking and savings accounts into one. You can make debit card purchases and write checks while earning a generous return. But money market accounts often limit the number of monthly withdrawals or transactions you can make before charging a fee.
- 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.
The bottom line
If you want your money to work harder for you, a high-yield checking account is a risk-free option worth considering. It’s relatively simple to open, offers many of the same features as traditional checking accounts, and pays you a better return on your money. But before opening a high-yield checking account, ensure the terms work for you.
“High-interest checking accounts can be a valuable financial tool, but they’re not a one-size-fits-all solution. Assess your financial habits and explore alternatives to find the right banking solution that aligns with your goals and lifestyle,” says Loehr.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.