Finding the best of both worlds in personal finance can be difficult. Specialty savings accounts and certificates of deposit come with high interest rates (often fixed) that guarantee high yields — but, liquidity to funds is sometimes limited, and many of these accounts are prohibitive to all but the wealthiest of depositors. Checking accounts offer more access to your money, but interest rates tend to be poor — or, often, nonexistent.
Checking products aren’t normally designed to be used as investment vehicles, but there are many benefits to opting for a high-yield checking account, proving that the best of both worlds does exist when it comes to banking.
Taking Interest in a High-Yield Checking Account
Opening a high-interest checking account has too many positives — and too few negatives — to pass up. Here are just a few.
1. High Interest
The obvious benefit of a high-interest checking account is in its name: It offers higher rates than its lower-interest checking counterparts. The difference can be night and day: Where high-yield accounts might carry an average 3.00% to 6.00% APY, according to the GOBankingRates database, many other traditional checking packages are lucky to come backed with a fraction of a percent of interest — if any at all.
“Sticking savings in a FDIC insured, high-interest account may not only help keep your money safe, but earn you a little something extra,” K.W. Calhoun of Yahoo! Finance wrote. “Even an extra $20 or $30 a month can add up to a dinner out or paying the Internet bill. And these days — at least in our family — every little bit counts.”
So does the added interest really stack up? According to Elizabeth Leamy of ABC News, it does. Leamy used the example of a $3,000 average account balance, comparing a regular checking average rate of 0.05% with a high-yield checking average of 1.64%.
“You’d make $49.20 in interest over the course of a year in a high-yield account,” Leamy wrote. “If that doesn’t excite you, consider this: you’ll make only $1.50 in interest in a regular checking account!”
And, of course, the more you have on deposit, the more you earn.
“Let’s say your average balance is five times more — $15,000,” Leamy said. “Then you’ll make $246 in interest compared with $7.50.”
2. FDIC Insurance
Like other deposit accounts, a high-yield checking account is protected by the FDIC or NCUA — a good idea, as higher yields translate to higher account balances.
3. Low to Zero Fees
A high-yield checking account is a premium product, so account holders are treated to premium service — and that tends to mean reduced or no fees.
“There are a few, mostly online checking accounts, that skip the fees entirely,” A. Elizabeth Freeman of The Nest wrote. “They do not charge monthly fees or fees to use outside ATMs. In some rare cases, a bank will not charge you a fee if you overdraw the account.”
Finding an account with low fees is imperative to keeping your finances healthy.
A checking account is a checking account, no matter what the interest rate, so your money is always available for withdrawals or debits — no need here to sit and wait two years for your money to mature like with a CD. Full access to your money, with dividends on top of that, makes for a winning combo.
“Your dream home comes on the market. You’ve got money. Need a new car? You’ve got money. Necessary home repair? You’ve got money,” Calhoun wrote. “And there’s likely little waiting around or dealing with associated penalties to get to it.”
Is High-Yield Checking for You?
It can be, depending on your banking needs. According to Sophia Bera of LearnVest, high-interest checking can be a good fit for people who:
Carry large account balances. This includes high earners who maintain a $10,000 to $25,000 monthly checking minimum, and who spend less than they earn.
Keep a stockpile of cash or funds on hand for specific reasons, like saving for a house or car, and who have enough financial reserves to tuck away into a high-interest checking account.
Are retired and seek a higher-interest product rivaling today’s investment accounts.
Pay careful attention to their finances and believe they can meet the criteria needed to open a high-yield checking account.
Are There Drawbacks?
Depending on how you look at it, these criteria can attract some depositors, but be a downside to others. Many high-yield checking accounts require a high minimum balance that many people aren’t able to meet or maintain.
You might also be saddled with check writing, debit or withdrawal limits, and the number of financial institutions that offer interest-bearing checking accounts could be limited, as well. And, unlike a CD, a high-interest checking account doesn’t have the luxury of fixed rates, so your APY will fluctuate.
These are all fairly minor banking quibbles, though. Most checking accounts, interest-generating or not, will have similar pros and cons. If you’re an active checking account holder, and you rely on it for your regular transactions, then you can’t go wrong with a high-interest account. The only task for depositors is finding a bank or credit union that offers an account and rate to your liking — then, you can let your account do the rest.