If you are an adult, chances are good that you have a checking account. It is the easiest way to cash your paychecks and pay bills. However, what you may not know is that some checking accounts will also pay you interest on your balance. If you regularly carry a balance in your checking account, you could be missing out on money if your bank does not pay interest.
How Does Interest Checking Work?
Interest checking accounts work just like regular checking accounts. You can still write checks, use a debit card to make purchases and pay bills, withdraw money from ATMs, etc. The difference is that with an interest checking account, your bank will pay interest on your balance. The interest rates range from 0.05% and 0.5% annual percentage yields (APY). APY is the amount of interest your bank will pay on your account. It is based on your daily balance and is compounded over 365 days.
Things to Consider
While earning interest on your checking account may sound wonderful, you will also want to check the account’s terms and conditions. Primarily, you want to see if your bank will charge you additional fees. Earning interest is great, but not if the account carries other high fees that will negate your interest earnings. Another consideration is whether you need to maintain a minimum balance.
When comparing interest checking accounts, you will want to check the APY. Typically, online checking accounts offer a more competitive APY, but they may not be right for everyone. Since they operate solely online, you will not have a local branch in which to do business.
Interest rates are also often determined by the tier under which you fall. For example, Tier 1 may include accounts carrying $0 to $100; Tier 2 $100 to $1,000; Tier 3 $1,000 to $5,000, and onward. As you consider APY rates, consider the daily balance you are likely to carry and check the terms and conditions to see if your financial institution is offering different rates for different tiers.
Interest Checking Account Options
Many institutions offer interest checking. We have listed a few below.
Ally Bank Interest Checking requires no minimum balance, and has no monthly fees or ATM fees. Users also receive a free Debit Mastercard and free standard checks. Those with a balance less than $15,000 will earn 0.10% APY, and those with a balance over $15,000 will earn .60%.
Bank of America’s Interest Checking Account requires an opening deposit of $100. There is no fee when you use a Bank of America ATM, but there will be a $2.50 charge for using other banks’ ATMs. There is also a $25 monthly fee unless you carry a combined balance of $10,000 in your Bank of America accounts. Customers will earn .01% on account balances less than $50,000 and .02% on accounts balances over $50,000.
Capital One’s 360 Checking Account charges no fees and requires no minimum balance. Customers also get a free MasterCard Debit card. APY is determined by a tiered system. Balances of $0 to $49,999.99 earn .20%; balances of $50,0000 to $99,999.99 earn .75%; and balances over $100,000 earn .90%.
Wells Fargo’s Preferred Checking pays interest if the customer maintains a balance of at least $500. Customers also receive no-fee cashier’s checks and a $10 discount on personal checks. There is a $15 monthly service fee, but it can be avoided if the customer maintains $10,000 in deposit balances, makes direct deposits of at least $1,000, or has a linked Wells Fargo Home Mortgage. All accounts earn .01% APY.