Do checking accounts pay interest?
Yes, there are checking accounts that pay interest, which are called interest-bearing checking accounts or high interest checking accounts. Although traditional checking accounts are not interest-bearing, rewards checking accounts and other types of checking accounts do earn interest.
At Credit Union of Southern California (CU SoCal), we make opening a checking account easy!
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What are interest-bearing checking accounts?
An interest-bearing checking account is one that pays a small dividend on your balance.
To earn interest, you typically need to maintain a minimum balance specified by your credit union or bank. If you do not maintain the minimum balance, you may be charged a penalty fee.
Most checking accounts with interest and interest-bearing checking accounts require that the account holder perform a specific number of transactions each month. For example,
to earn the Rewards Checking dividend using your CU SoCal Checking account,
you must have twelve (12) signature-based and/or PIN based debit card purchases each monthly statement cycle.
Advantages of interest-bearing checking accounts
Here are some of the advantages of high interest checking accounts and interest-bearing checking accounts.
Money earns interest
As the name implies, these accounts pay interest the account balance.
- Easy access to cash. As with other types of checking accounts, interest-bearing checking accounts come with a debit card and provide full 24/7 access to your money.
- Insured. The National Credit Union Administration (NCUA) is an independent agency created by the U.S. government to regulate and protect credit unions and their Member-owners. This includes insurance (up to $250,000 per account), which makes credit unions as safe as traditional banks.
- ATM fee refunds. Interest-bearing checking accounts typically come with an ATM card that can be used at ATMs owned or operated by your credit union or bank, as well as in-network ATM machines. Some financial institutions may refund ATM fees resulting from use of out-of-network ATMs.
Disadvantages of interest-bearing checking accounts
While there are many advantages to having a checking account with interest or any type of checking account that pays interest. However, there are also disadvantages to be aware of:
- Monthly fees. Some interest-bearing checking accounts come with a monthly account maintenance fee. There may be fees charged if you do not meet the monthly transaction requirements.
- Low yields compared to other options. Earning interest and rewards for purchase is great, but there are other types of accounts that could earn higher interest, such as money market accounts and share certificates.
- Higher minimum balance requirements. To earn interest and rewards, a higher minimpersimmonum balance is typically required, compared to a traditional checking account.
- Caps on the amount of money that earns interest. Some credit unions and banks may put a cap on what portion of money in the account earns interest. For example, if your account balance falls below the required minimum balance, you may stop earning interest.
- Transaction requirements. To earn interest banks require a specific number of transactions per month and specific types of transactions, such as debit card transactions or direct deposit into the account.
How to open an interest-bearing checking account
Opening an interest-bearing checking account is the same as opening any other type of checking account. Here are the typical steps:
- Comparison shop. Your local credit union or bank is a good place to start. There are also online financial institutions offering checking accounts. Be sure to ask about account requirements and fees.
Review application requirements. Some credit unions and banks will also evaluate your financial standing by running your name through ChexSystems, a national consumer-reporting agency that compiles and maintains files on problems that consumers may have had with checking and savings accounts. Most financial institutions require that customers have not defaulted on account payments and are in good standing. Credit unions require membership to join.
- Gather necessary documents. You’ll need to show identification, including your name and Social Security Number or other government-issued identification, such as a driver license.
Apply in-person or online. All financial institutions provide in-person and online application options.
How do interest checking accounts compare?
Here’s how different types of checking accounts with interest compare to each other:
Interest-bearing checking accounts vs. savings accounts
Savings accounts typically pay interest on the account balance and are used for saving money. Savings accounts were created to help people keep the money they use to pay bills separate from the money they save.
Interest-bearing checking accounts vs. money market accounts
A
money market account is a type of savings account and is an interest-bearing accounts, meaning that interest is paid on the account balance. Most money market accounts come with a debit card and checks, to make financial transactions easier and more convenient. Money market accounts typically pay more interest than interest-bearing checking accounts and traditional savings accounts.
Interest-bearing checking accounts vs. share certificates
A
share certificate or certificate of deposit is a type of savings account that holds a fixed amount of money for a fixed period (such as six months, one year, or five years), and in exchange, the financial institution pays you interest. When the term comes to an end and you cash in your certificate, you receive the money you originally invested plus the interest. At credit unions, including CU SoCal, certificates of deposit are simply known as “
certificates.” Share certificates can earn more interest than interest-bearing checking accounts.
Is an interest-bearing checking account right for me?
If you can meet the requirements of the account, then an interest-bearing checking account could be right for you. Your account will be set up like a regular checking account, from which you can pay your bills, plus you’ll earn some extra money on the balance.
Where can I get an interest checking account?
Checking accounts with interest, interest-bearing checking accounts, and high interest checking accounts are available at credit unions, banks, and online banks.
Why savvy consumers choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
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