Checking accounts are generally intended for short-term deposits and expenses. But some offer interest rates on account balances. When checking accounts offer interest, the rates are generally on the low end. But if you prefer to eke out as much interest as you can from your accounts, you may want to look for a checking account that earns interest. Here’s what to know. To understand how the right banking accounts play into your full financial picture you may want to work with a financial advisor.
Understanding Checking Accounts
Checking accounts are one of the most common types of bank accounts. Individuals and businesses typically use checking accounts to pay for everyday transactions, such as paying bills, making purchases and depositing and withdrawing money. Checking accounts provide a safe and easy way to hold their money and access it when needed. They are generally FDIC-insured, so most people don’t have to worry about losing their balances.
There are several types of checking accounts available, each with its own set of features and benefits. A few common types of checking accounts include:
- Basic checking accounts: This type of checking account is among the most common and usually has low deposit requirements and fees. However, they generally don’t earn interest.
- Interest-bearing checking account: This type of checking account earns interest on balances deposited into the account. However, they may have higher minimum balance requirements than basic checking accounts and there may be fees associated with them.
- Student checking accounts: These checking accounts are designed for students and tend to have lower minimum deposit requirements than other checking accounts. They might also have lower fees and perhaps other benefits, such as overdraft protection.
- Online checking accounts: This type of checking account is generally offered by online banks with no physical branches. This often allows them to offer checking accounts with lower fees and higher interest rates than traditional checking accounts.
Checking accounts have several advantages, but they do have their downsides. For instance, some checking accounts have fees for certain transactions or if their balance falls below a certain threshold. And while some checking accounts earn interest, those rates are usually lower than the rates seen in savings products like high-yield savings accounts and certificates of deposit (CDs).
Checking Accounts and Interest Rates
While there are several things to think about before opening a checking account, there are many things to keep in mind, including fees and features. However, interest rates are likely an important factor as well. Interest-bearing checking accounts, also known as high-yield checking accounts, pay a small amount of interest on the money deposited into the account. Despite their relatively low rates, earning interest on the funds in your checking account can help your money last longer or even grow.
In addition to this benefit, interest-bearing checking accounts also have no loss of liquidity. This contrasts with CDs, for example, which require you to keep your money in the account for a predetermined time to earn a higher rate. With an interest-bearing checking account, you can access your money whenever needed.
Also, while interest rates on checking accounts tend to be low, some banks do offer competitive interest rates on them. Lastly, some interest-bearing checking accounts can have lower fees than non-interest-bearing checking accounts, allowing customers to save money.
Choosing a Checking Account
As mentioned earlier, there are several factors you must consider when choosing a checking account. In addition to fees, features and minimum balance requirements, there are some other things you should keep in mind:
- ATM network: There might be out-of-network fees if don’t have an in-network ATM nearby, so ATM access is important if you will need quick and easy access to cash. Although online banks usually don’t have physical branches, they often partner with large ATM networks. Still, be sure to check if you have in-networks ATMs near you before signing up.
- Online and mobile banking: People increasingly do most or all their banking on the go these days. If you’re in that camp, check to see if the bank you’re considering has good online and mobile access capabilities. Check for features like the ability to view account balances, transfer funds and pay bills from your computer or mobile device.
- Extra features: Some checking accounts go above and beyond with extra features. These might include overdraft protection, free checkbooks or rewards. While banks aren’t required to offer any of these extras, they could help tip your decision in favor of one bank or another.
In addition to considering the above features, also compare local banks versus credit unions. The latter sometimes offer better rates and customer service, but that isn’t necessarily always true. By comparing different accounts and banks, you can find the checking account that best fits your needs and helps you manage your money effectively.
The Bottom Line
Some checking accounts offer an interest rate that lets you earn money on your checking account balances. However, there are different types of checking accounts, such as basic checking, online checking and student checking. Each of these accounts may have its own fees, minimum deposits and extra features. Also, keep in mind that while your bank may offer an interest-bearing checking account, the rates might be lower than on savings products like high-yield savings accounts and CDs.
Tips for Opening a Checking Account
- A financial advisor can help you work through your banking needs and put together a plan that works for your unique situation. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- The best checking accounts pay some of the highest rates and often do away with costly fees. See SmartAsset’s list of the best checking accounts to find one that’s right for you.
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