Updated
Fact Checked
Eric McWhinnie
When it comes to personal finance, every dollar counts, and that's where interest checking accounts come in. By the time you're done reading this article, you'll know what an interest checking account is, how it works, how to take advantage of a checking account that pays interest, and when it's time to move your money somewhere else.
What is an interest checking account?
Interest checking accounts are sometimes called "high interest checking" or an "interest bearing checking account." As the name suggests, these checking accounts pay interest on your account balance. While the interest rate is not typically as high as the rate paid on a certificate of deposit (CD), money market account (MMA), or even a savings account, high interest checking accounts offer the easiest access to your money.
Like any personal checking account, an interest bearing checking account allows you to do things like:
- Use your debit card
- Write checks
- Make ATM transactions
- Use digital banking to set up bill pay
- Enroll in overdraft protection
- Sign up for direct deposit
The difference is, the balance in your account earns interest.
How does an interest checking account work?
Let's say you open an account that typically carries a balance of $2,000. While the funds in a "normal" checking account would remain at $2,000, the money in interest checking grows, thanks to the annual percentage yield (APY) paid by the bank.
Not all banks pay interest on their checking accounts. However, those that do, offer a variety of options. For example, a SoFi checking account currently pays a base APY of 0.50%. And you can earn even more if you open a savings account and make regular deposits.
Quick Tip: You will usually find higher APYs at online lenders and credit unions on both savings and checking accounts.
Interest checking account example
Here's a quick look at the difference between a standard checking account and an interest checking account.
| Starting balance | After one year in regular checking | After one year of interest checking in a brick-and-mortar bank playing 0.10% | After one year of interest checking in an online bank paying 1.25% | After one year of interest checking in a credit union paying 2.09% |
|---|---|---|---|---|
| $2,000 | $2,000 | $2,002 | $2,025 | $2,042 |
Source: Author's calculations
Do all checking accounts pay interest?
No, most checking accounts do not pay interest. And as you may have gleaned from the table above, even banks that do pay interest pay very little.
How do I find a bank that pays interest on checking accounts?
Your best bet is to check online banks and your local credit union. Online banks can make an interest checking account worth your while due to their low overhead. As a credit union member, you're automatically a member-owner. That means you have access to the lowest interest rates and highest APYs.
If you're looking for a bank that pays interest on your checking account, make sure it offers the following:
- A website that's easy to navigate
- A mobile app that allows you to do business from wherever you are
- A mobile app that allows you to make deposits remotely
- Bill pay capability
- Direct deposit
- Easy-to-use transfer options
- Exceptional customer service
Should I keep all my money in an interest checking account?
No. While an interest bearing checking account is a nice perk, the APY earned does not typically compare with other bank products. For example, if you want to earn a bit more interest but still have access to your funds, a money market account is normally a better option. If you're looking to grow your money for the future, certificates of deposit (CDs) have historically paid far more. While it's good to keep a small balance in a checking account, the amount earned in interest is sure to be outpaced by inflation.
Pros and cons of interest checking
Consider these pros and cons as you determine where you're going to keep the bulk of your funds.
Pros
- Earning some interest is better than earning none.
- They're more flexible than other types of accounts.
- Many interest checking accounts have low (or no) monthly maintenance fees.
Cons
- You can usually earn more interest in other types of accounts.
- Most banks require customers to carry large balances to earn the highest APY.
- Some banks charge fees that erode any earnings.
FAQs
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Some do, but it's important to learn if a bank also charges fees, like monthly maintenance.
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Interest rates are tied to what's happening nationally and where the Federal Reserve has set its federal funds rate. A good interest rate is one that outpaces inflation.
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Yes, for smaller balances they are worth it. After all, it's better to earn some interest than no interest.
Our Banking Experts
Dana George has a BA in Management and Organization Development from Spring Arbor University. For more than 25 years, she has written and reported on business and finance, and she's still passionate about her work. Dana and her husband recently moved to Champaign, Illinois, home of the Fighting Illini. And though she finds the color orange unflattering on most people, she thinks they'll enjoy Champaign tremendously.
Fact Checked
Eric McWhinnie
Eric McWhinnie has been writing and editing digital content since 2010. He specializes in personal finance and investing. He also holds a bachelor’s degree in Finance.
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