3 Interest-Bearing Bank Accounts That Could Cost You in the Long Run

One of the most appealing reasons for keeping money in the bank as opposed to in a safe inside your house is that you can earn interest on bank account funds. Banks use money you keep there to help fund loans to other customers, and then they give you a piece of what they've earned from lending as the bank account's annual percentage yield (APY).

Some accounts can pay you hundreds or even thousands of dollars per year in interest, depending on the interest rate and your balance. But there are other accounts whose APYs are little more than a marketing gimmick. Here are three types of interest-bearing accounts you probably want to stay away from.

1. Traditional savings accounts

Brick-and-mortar banks have long had interest-bearing savings accounts, but even today, these accounts usually don't have high interest rates. The national average savings account APY is just 0.47%, and there are still plenty trying to get away with offering you a measly 0.01%. That would grow a $1,000 balance by just $0.10 in one year.

Part of this comes down to the high overhead costs of maintaining a physical network of bank branches. There are a lot of employees and buildings to maintain and costs like salaries, property taxes, and utilities limit how much extra cash these banks have on hand.

This isn't a problem with online banks. Since these have no branch locations, their overhead costs are a lot lower. They pass along their savings to their customers through lower fees and higher interest rates on bank accounts.

Currently, the best high-yield savings account rates are near a whopping 5.00%. They're expected to dip later this year when the Federal Reserve begins slashing interest rates. But they'll remain a lot higher than what most brick-and-mortar banks can offer. So this is probably a better fit than a traditional savings account for most people.

2. Interest-bearing checking accounts

Interest-bearing checking accounts have become popular among online banks, and some brick-and-mortar institutions have them as well. These can seem more appealing than checking accounts that don't pay interest, but in practice, you probably won't notice much difference between them.

Interest-bearing checking accounts often have rates that are well below what high-yield savings accounts offer. This means you'll earn interest more slowly on your checking account funds. You're often better off stashing extra cash in a high-yield savings account if you hope to maximize your money's growth.

When choosing a checking account, it's more important to focus on how easy it is to access your funds. The account should come with strong online and mobile tools as well as a debit card and, if it appeals to you, check-writing capabilities. A large ATM network is also ideal if you'll need to withdraw cash regularly.

3. Long-term CDs

Long-term certificates of deposit (CDs) may not be a bad fit in all circumstances, but there are times when it makes sense to stay away. CDs require you to leave your money untouched for the full CD term or risk penalties. In a long-term CD, this could be several years. It doesn't make sense to put money here if you believe you'll need to access your funds before the CD term ends.

Long-term CDs also aren't a great choice when interest rates on banking products are rising. Your CD interest rate is usually locked in for the full CD term. Opening one when rates are rising means you could stick yourself with a much lower interest rate than you could've gotten by keeping your cash in a high-yield savings account over the same time frame.

On the contrary, some people find long-term CDs appealing when interest rates are falling, as they're expected to do later this year. This enables them to lock in a higher rate than they might get with a savings account over the same period. But there's still that tradeoff in accessibility to consider.

It's best to explore all available bank accounts and compare your options against what matters most to you. If maximizing your savings' growth is your top priority, a high-yield savings account is a great option. But if easy access is paramount, you can't beat a checking account with few fees.