Do Checking Accounts Earn Interest?
Generally, checking accounts do not accrue interest since they’re mostly for short-term deposits and expenses. An interest checking account is a great option if you plan on keeping a high balance in your checking account. Keep reading to decide if a checking account that earns interest is right for you, how it works, and a few general requirements that go with it.
What Is an Interest Checking Account?
An interest checking account is an account that accrues interest and dividends at a set rate. Most traditional checking accounts don’t earn interest dividends since they’re meant to hold funds for everyday expenses, therefore money is pulled from them frequently.
However, an interest checking account is designed and intended for longer-term savings versus everyday transactions.
How Does an Interest Checking Account Work?
An interest checking account blends the best of traditional checking and savings accounts. You’ll have the flexibility of a checking account while also earning interest on the money you deposit. This interest is calculated as an annual percentage yield (APY) and is regularly deposited into your account, usually monthly.
General Account Requirements
To be eligible for these higher interest rates, you might have to meet specific requirements, like a minimum initial deposit or a certain number of monthly transactions.
As a Radiant Credit Union member, you’ll have additional perks like no monthly account fees or minimum balance requirements. Keep in mind, if you keep your balance over $500, you’ll earn the most competitive interest and dividends.
Pros of Interest Checking Accounts
Checking accounts that earn interest have both benefits and drawbacks. On the pro side, they can help you grow your balance and set you up for future financial success. They also encourage you to spend less because a higher balance will earn more interest.
Cons of Interest Checking Accounts
There are also drawbacks to consider. Many of these accounts have large opening deposits and ongoing balance requirements. This means you need a large sum of money in your account each month to maintain all of the benefits.
Rates can also be unpredictable, especially if you have a variable APY. A variable APY means the interest can change at any time. Which is great if the rate goes up, but not great if it goes down.
Some accounts with great benefits can also have hidden fees. If you’re not aware of these fees upfront, you might be surprised by unforeseen charges each month.
How Much Interest Can I Earn?
The average APY for interest-earning checking accounts is 0.03%, however, this varies from bank to bank. Ultimately, it depends on the bank you choose, what type of account you have, and your balance. You can expect to earn some form of compounding dividends (the interest earned on your deposits plus the interest you’ve earned) which are paid on a monthly basis.
Get Started With Radiant Credit Union
Radiant Credit Union offers different types of checking accounts to suit our members’ needs. Click below to learn more about our interest-bearing checking account.