What Are Interest-Bearing Checking Accounts?

Did you know that there are checking accounts out there that pay interest? For some people, these interest-bearing checking accounts come as a surprise. Many of us think that checking privileges means you can deposit your earnings and pay bills, but otherwise your money is just sitting there.

If you’re in that group, it may literally pay to learn about interest-bearing checking accounts, which allow that money in the bank to grow a bit as you conduct your daily transactions. Typically more flexible than savings accounts, interest-bearing checking can give you a nice little financial boost if they’re a good fit for you. In some cases, they may not sync up with your money style.

So let’s take a closer look at these interest-bearing checking accounts:

•   What they are

•   How interest-bearing checking accounts work

•   How much interest you could earn

•   The pros and cons of having one of these accounts.

What Is an Interest Checking Account?

Whether it’s called an interest-bearing checking account or simply an interest checking account, this is a type of checking account where the account holder can earn interest. The interest rate may not be amazingly high: Currently, it is typically between 0.50% and 1% APY, or annual percentage yield, which is the real rate one earns when compounding interest kicks in. (Occasionally, APYs of 3% or 4% pop up.) Even at the lower range, the interest accrued is better than nothing. Honestly, who doesn’t want to earn more interest?

There may, however, be a catch: Although the account will pay an APY, accountholders may be required to pay monthly maintenance fees or maintain a certain account balance.

Then there’s the matter of balance requirements: You will probably need to keep more in an interest checking account, though the exact amount will differ by financial institution. However, one recent survey found that on average, customers needed to keep just over $505 in an interest checking account to avoid monthly fees, which is $343 more than the average minimum deposit needed in a non-interest checking account.

You might also have to pay a monthly account fee; again, it depends on the bank you choose. Recent research found that interest checking accounts had an average monthly fee of $16.35 versus non interest checking accounts average of $5.08. It’s worthwhile to do the math to make sure the interest you earn will offset the fees you pay.

One more point: In many cases, interest checking accounts earn less interest compared to savings accounts.

However, a checking account has added flexibility that may be beneficial (we’re referring to things like unlimited transactions and debit-card and check-writing features).

How Do Interest-Bearing Checking Accounts Work?

These types of accounts work in a similar way to other kinds of checking accounts. Account holders can make deposits at ATMs, online, by direct deposit, or at branch locations depending on the financial institution.

As for withdrawals, account holders can make bank transfers, withdraw cash from an ATM, write a check, use bill pay, or pay for purchases with a debit card. The only difference is that, instead of earning no money on your balance, you will accrue some interest, usually on a monthly basis.

What Are Some Common Account Requirements for Interest-Bearing Checking Accounts

When it comes to opening an interest-bearing checking account, there may be some requirements to wrangle. Keep the following factors in mind:

•   Minimum-balance and other account requirements: When you open an account, some financial institutions may require a minimum initial deposit. Current offers for interest-bearing checking range from zero dollars to $2,500 or higher as a minimum deposit. Shop around to find the right account for your needs.

   Plus, as mentioned above, you may need to maintain a certain balance in order to avoid fees. There may also be other rules such as the amount of transactions you can make on your debit card.

•   Fees: Some interest checking accounts may charge monthly fees, as we described earlier in this article, which could eat into the interest you earn. You may have to keep a higher balance in your account to avoid fees. Other fees to consider are overdraft fees, and whether you’ll need to pay third-party network fees to access certain ATMs.

•   Application requirements: Depending on the financial institution, you may be required to submit documents such as your Social Security number, proof of address, and government-issued photo ID. If you want to open a checking account with a credit union, you’ll most likely need to become a member.

Advantages and Disadvantages of Interest-Bearing Checking Accounts

An interest checking account may not be the best option for you. Consider the following advantages and disadvantages before opening an account:

•   PRO: You’ll earn interest Most traditional checking accounts won’t pay you any interest, but with an interest-bearing one, you’ll earn high interest. That means your money will help you earn some money while it’s sitting in the account. Typical APYs currently range from 0.50% to 1.25%.

•   CON: You may have to meet certain requirements Though there are some interest checking accounts that don’t have minimum balance requirements or monthly fees, some do. That means you could be on the hook for a monthly fee if you can’t meet account requirements. In some cases, these fees could negate the amount you earn in interest.

•   PRO: You’ll have more flexibility Checking accounts tend to not have transaction limits like you would with savings accounts or money market accounts. Plus, you can use checks and a debit card, offering you more flexibility to access your hard earned money.

•   CON: You may not get a high interest rate The interest you earn on a checking account tends to be lower compared to ones you earn from a high-yield savings account or money market account. But there are definitely exceptions to the rule: Some banks have offered as much as 2%, 3%, or even 4% on interest checking accounts, so it can truly pay to shop around and see if you can nab one of those deals.

How Much Interest Does a Checking Account Pay?

The truth is, checking account interest rates will vary depending on the type of account and the financial institution. On average, banks offer an APY of 0.03%. There are high-yield checking accounts that could pay more, but these rates are generally still lower than what you could earn with a savings account. If you hunt, you might find a better rate, but you will probably need to invest a bit of time and effort to find the accounts with rates near 2% or higher.

Sure, you can consider keeping a higher balance, but these rates probably won’t earn as much as you can compared to other types of accounts. If your main goal is to earn as much interest in your liquid cash reserves, you may want to consider putting more towards a savings account or investments.

Where Can I Get an Interest Checking Account?

You can open an interest checking account at most financial institutions, including traditional and online banks, as well as credit unions. As mentioned before, you may be required to become a member of the credit union you want to open a checking account with.

When shopping around, look beyond interest rates. Other equally important factors to consider are:

•   Account features (access to your funds, for instance; when the interest accrues)

•   Account-holder benefits (are there other perks to being an account-holder?)

•   ATM, overdraft, and other fees

•   Minimum balance requirements (how much do you need to keep on deposit to earn interest?).

Is It Worth It to Get an Interest-Bearing Checking Account?

Thinking carefully about your financial situation and goals should help you determine whether it’s worth getting an interest bearing checking account. For those who want to keep a decent amount of money in a checking account to ensure bills and daily transactions are taken care of, it might be worth considering. Why not earn a bit of interest if you can find an account that doesn’t charge fees?

However, if you’re interested in having a stash of cash available for short-term or medium-term savings goals — as in, you’re not planning on making frequent withdrawals — then an online bank account or a similar account at a bricks-and-mortar bank may be the better choice. If your goal is to save for long-term goals like retirement or a college fund for your child, then an investment account could be the way to go.

The Takeaway

An interest-bearing checking account may be worth it if you’re looking for an account to conduct daily transactions with the ability to grow your money a bit. It’s important to look through the fine print to see if there are any minimum balance requirements and what the fees are. You also need to decide whether you’re willing to keep a certain balance to earn interest. Comparing the potential interest to be earned with any fees that may be charged is a vital step before applying for an interest checking account.

We can give you one easy, money-smart option: SoFi Checking and Savings. If you sign up with direct deposit, you’ll earn a very competitive APY. What’s more, we’re fee-free: No minimum-balance or monthly fees, and we’ll cover $50 in overdraft without charging you.

FAQ

Is an interest-bearing checking account worth it?

An interest-bearing account is a smart way to earn a bit of interest on your checking funds if you can easily meet account requirements. For instance, if you know you’ll be able to keep a certain amount on deposit to earn interest, then the account is worth considering.

Who has interest-bearing checking accounts?

Most financial institutions offer interest bearing checking accounts, including online banks, traditional brick and mortar banks, and credit unions.

What is the benefit of having an interest-bearing checking account?

The main benefit of an interest checking account is that account holders can grow their money while having flexibility in their daily financial transactions.

Photo credit: iStock/FG Trade

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..

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