One of the ways that you can improve your financial situation is with the help of interest checking. There are checking accounts that pay interest on your balance, and these can provide you with a little extra money in your pocket. Plus, it’s a great way to earn interest while maintaining the liquidity that comes with a checking account.
How Much Interest Can You Earn?
It’s important to note that many interest-bearing checking accounts are online accounts. While you can find some interest checking accounts at brick and mortar banks, you will be more likely to find them with online banks that have low overheads and can afford to pay a little bit out in interest.
In many cases, you are likely to earn right around 0.20% to 0.40% on your checking account balance. Many banks will also start paying interest on your balance on any amount that you have in the bank, as long as it is at least $1. Of course, if you have a small balance, you won’t see much in terms of interest earnings.
Depositing more, though, can result in interest rates that are almost on par with high-yield savings accounts and high-yield CD rates. Ally has one of the best deals, requiring $15,000 to start earning a rate of 0.75% APY. Many other banks require that you deposit $25,000 to $100,000 if you want yields as high as 0.80% to 0.93%.
So, even though you may not have to pay checking account fees if you keep a low balance, you won’t get the best possible yield.
Interest Checking: Good for Liquid Emergency Funds
Using your interest checking account can be good for your primary checking, since you get a little something. You might not earn a huge amount of money, since your checking account balance on your primary account is rarely huge, but it’s still better than earning 0% on a more traditional checking account.
Another option, though, is to incorporate your emergency fund strategy with interest checking. One of the drawbacks to an emergency fund kept in a high-yield, online account is that it can take a few days to get your money. It’s not conducive to having immediate access (unless you have an ATM card). An interest bearing checking account can provide you with instant access, via debit card, to your emergency fund. It’s a way to earn a return while keeping some of your funds in a highly liquid account.
You can also consider linking a high-yield savings account with your interest checking account. If you have the two accounts at the same institution (like Ally or Capital One 360), it’s easy to instantly transfer between accounts so that you can access the money quickly and easily.
I like to have a small portion of my emergency fund in a high liquid account so that I have instant access to the money. I like to have enough to tide me over for three to six days. That way, I can handle the emergency while I wait for money to be transferred for a higher-yield (but less liquid) account. An interest checking account is one option for this process, since many of these accounts still pay a better yield than savings at the local brick and mortar bank.
