Do Checking Accounts Earn Interest?

Checking accounts are generally intended for short-term deposits and expenses, but do checking accounts earn interest? Some do offer interest rates on account balances, but they are generally on the low end. However, 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.

To understand how the right banking accounts play into your finances, consider working 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 do not have to worry about losing their balances.

There are several types of checking accounts available, each with its own set of features and benefits.

Basic checking accounts: This type of checking account is among the most common and usually has low deposit requirements and fees. However, they generally do not 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 for students 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. Because of this, they typically have 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. 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

A couple researching, "Do checking accounts earn interest?"

There are several things to consider before opening a checking account, such as fees and features. Interest rates are an important factor, as well.

Interest-bearing checking accounts, also known as high-yield checking accounts, pay a small amount of interest on 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 offer competitive interest rates on them. Lastly, some interest-bearing checking accounts can have lower bank fees than non-interest-bearing checking accounts, saving customers money.

Choosing a Checking Account

There are several factors to consider when choosing a checking account.

ATM network: There might be out-of-network fees if you don’t have an in-network ATM nearby, so ATM access is important if you frequently need quick and easy access to cash. Online banks usually don’t have physical branches, but they often partner with large ATM networks. Still, be sure to check if you have in-network 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 banking capabilities. Check for features like the ability to view account balances, send money and pay bills from your computer or mobile device.
Extra features: Some checking accounts go above and beyond with extra features like overdraft protection, free checkbooks and bank rewards. While banks aren’t required to offer any of these extras, they could help tip your decision in favor of one bank over another.

In addition to these considerations, compare traditional banks versus credit unions. The latter sometimes offer better rates and customer service but not always. By comparing different accounts and banks, you can find the checking account that best fits your needs and helps you manage your money effectively.

When Interest-Bearing Checking Accounts Make Sense

Interest-bearing checking accounts can make sense for individuals who keep a relatively high balance in their account and want to earn some return without locking up their money.

Unlike savings accounts or certificates of deposit, these accounts allow for unlimited withdrawals and spending, making them useful when you want daily access to your funds while still earning interest. If you prefer to keep your money in one place rather than splitting it between checking and savings, this type of account can offer both convenience and a small amount of growth.

Interest-bearing checking accounts are also a good fit if you meet the requirements to avoid monthly fees. Many interest-bearing checking accounts have specific conditions, such as a minimum daily balance or a minimum amount of direct deposits each month.

If you already meet these conditions with your current banking habits, an interest-bearing account might allow you to earn interest without any extra costs. In that case, it presents a better value than a basic checking account with no earnings.

However, for customers who typically maintain lower balances or frequently dip below the required thresholds, a traditional or no-fee checking account might be a better option. The interest earned on small balances may not offset the monthly service charges. In those situations, pairing a no-fee checking account with a separate high-yield savings account could be a more efficient way to manage money and maximize returns.

Bottom Line

A man reviewing how much interest his checking account earns.

Some checking accounts carry an interest rate that lets you earn money on your checking account balance. However, there are a few things to consider, such as the type of checking account you choose. Popular checking account options include basic checking, online checking and student checking accounts, but 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.

Consider working with a financial advisor to develop a personal banking strategy that benefits your long-term goals.

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 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.