What is an Interest Checking Account?

There are many places to store your money. Interest checking accounts hold unique benefits that make accessing your money easy and convenient. But what is an interest checking account? Simply put, a bank gives you a small fraction of interest in exchange for holding your money with them. Banking just doesn’t get much easier than that.

Interest checking accounts aren’t without their drawbacks, though. Namely, you’ll only earn a bit of interest, and often that just adds up to a few dollars a year. Still, there are other perks that make an interest checking account a strong option.

Key takeaways

• Interest-bearing checking accounts offer a small amount of interest, but it’s the convenience of having your money readily available to you that makes them a strong account option.
• Interest checking accounts are great for everyday spending and pair well with other accounts like money markets, certificates of deposit (CDs), and savings accounts.
• Some interest checking accounts come with higher interest rates, but those are often for customers who can maintain higher balances.

What is an interest checking account?

An interest checking account is a bank account that earns interest on the deposited balance while giving you access to your money through a debit card, checks, and ATMs. The interest incentivizes you to keep your money in the account, which aso benefits your financial institution.

Unlike a “standard” checking account that typically doesn't offer any interest on the money you have there, an interest checking provides a variable interest rate (it’s subject to change) that accrues on the account balance. The interest is usually calculated daily and added to the account every month, much like how a savings account operates, although that’ll vary based on the bank you’re working with.

How much will you earn?

Interest checking accounts typically offer a relatively low interest rate compared to other financial products. How much you’ll earn with your specific interest checking account depends on a few different factors, including the interest rate offered and your maintained balance.

To get a better idea of how much you’ll earn, you’ll want to use the following formula (or a handy interest calculator).

Balance x interest rate = earnings

Here is an example using the current average checking account interest rate of 0.07%, as reported by the FDIC as of June 9, 20203, and a maintained balance of $10,000:

$10,000 x 0.0007 = $7

If you continuously maintain a balance of $10,000, after a year you’ll earn $7. While not much, if you can score an account with no fees, you’re earning money for doing absolutely nothing but depositing some money.

Pros and cons of interest checking

Pros	Cons
Easily earn interest Easily access your money through debit cards Large ATM networks Potential for other banking features	Relatively low interest rates Potential fees Minimum balance requirements

Pros

• Easily earn interest: Not every checking account offers interest, but some offer the opportunity to earn interest on the funds you deposit. This helps you grow your money over time without having to lift a finger.
• Easily access your money through debit cards: One of the main draws of checking accounts is the ability to access your money simply by swiping your debit card. This makes spending on the go easy.
• Large ATM networks: Many interest checking accounts are offered by banks that have large ATM networks, giving you another way to easily access your cash.
• Potential for other banking features: Many interest checking accounts offer extra features like overdraft protection. This helps prevent you from facing declined transactions by linking the account to a savings account or a line of credit.

Cons

• Relatively low interest rates: While interest checking accounts provide the opportunity to earn interest, the rates are typically much lower compared to other types of accounts.
• Potential fees: Some interest checking accounts come with monthly maintenance fees or transaction fees, which erase the interest you earn if you’re not keeping a high enough balance.
• Minimum balance requirements: Some interest checking accounts require a minimum balance to avoid monthly fees or qualify for a higher interest rate.

Interest checking vs. high-yield savings

Interest checking	High-yield savings
Convenient for daily transactions Flexible withdrawals and transfers Low fees and balance requirements	Higher interest rates than interest-bearing checking Focus on long-term savings May have incentives for maintaining higher balances

Interest checking

Convenient for daily transactions

Interest checking accounts offer convenient features like debit cards, checks, and mobile banking for day-to-day transactions. These accounts allow for frequent transactions, making them perfect for those who require regular access to their money for daily use.

Flexible withdrawals and transfers

Some interest checking accounts offer unlimited transactions without restrictions or penalties. (Others don’t, so make sure to double-check before deciding on an account.)

Low fees and balance requirements

You’ll find plenty of interest checking accounts that don’t charge monthly fees for holding your money. Additionally, there are usually low minimum balance requirements. Sometimes, if there are minimum requirements, they’re waivable when you meet certain requirements.

High-yield savings

Higher interest rates than interest-bearing checking

High-yield savings accounts undeniably offer higher interest rates compared to interest checking accounts. These accounts provide an opportunity to earn more substantial returns on your savings, making them an attractive option for individuals looking for the highest annual percentage yield (APY) possible.

Focus on long-term savings

High-yield savings accounts emphasize building savings over the long term, so they often have limitations on the number of monthly transactions you make. Six withdrawals per month is a common limitation.

Incentives for maintaining higher balances

High-yield savings accounts may have higher minimum balance requirements compared to interest checking accounts, but they offer incentives for keeping a high balance. These accounts tend to provide more favorable interest rates as you start saving more in the account.

Interest checking vs. money market account

Interest checking	Money market account
Flexibility Lower minimum balance required Lower monthly fees	Higher interest rates Limited amount of monthly transactions Tiered balance requirements

Interest checking:

Flexibility

Interest-bearing checking accounts offer a high level of flexibility for day-to-day transactions. With features like debit cards, checks, and mobile banking apps, these accounts provide easy access to your funds.

Lower minimum balance required

For the most part, interest-bearing checking accounts typically have lower minimum balance requirements compared to money market accounts and some savings accounts. Many accounts have no minimum balance requirement at all, making them more accessible to a wider range of customers.

Lower monthly fees

Many interest-bearing checking account options come with no fees, putting the interest you earn straight back into your pockets. For the ones that do have fees, some simply require you to meet certain criteria, such as setting up direct deposit or maintaining a minimum balance, to waive the monthly fees.

Money market accounts

Higher interest rates

Money market accounts generally offer higher interest rates compared to interest-bearing checking accounts. The FDIC average as of June 8, 2023, is 0.59% for MMAs.

Limited amount of monthly transactions

Unlike interest-bearing checking accounts, money market accounts may have restrictions on the number of monthly transactions allowed. Many financial institutions limit withdrawals to six per statement cycle. This used to be a federal limitation, but this was lifted in response to the pandemic. Banks weren’t required to lift their withdrawal limits, however. This limitation makes money market accounts more suitable for individuals who have a higher balance that they don’t need to access frequently.

Tiered balance requirements

Money market accounts often have tiered balance requirements where higher balances earn more favorable interest rates. MMAs try to strike a balance between higher interest rates and access to your funds, making them a suitable choice for customers with significant savings who still need limited access to their money.

What to look for in an interest checking account

You may want a deposit account that offers a high interest rate, but that’s not the only factor to consider when you’re shopping for a new account.

Other considerations include the following:

• Account requirements: Do you meet the account’s daily balance, can you stay within the minimum number of debit card transactions, or live with other requirements, if any? In particular, do you meet the requirements for monthly service fees to be waived or to get the highest interest rate?
• ATM fees: If it’s an online-only bank, does it have fee-free ATMs near you or an ATM fee reimbursement option?
• Overdraft fees: Many banks waive these fees.
• Branch locations: If you’re looking for in-person service, does the bank have convenient locations to you?
• Online banking: Does the bank offer online bill pay and other services? Does it have a useful mobile app?
• FDIC insurance: Does the bank have “Member FDIC” on its website? If it’s a credit union, it should be insured by the NCUA.

FAQ

Bottom line

Interest-bearing checking accounts offer a level of convenience that other accounts don’t. You can easily access your money with the help of a debit card while earning interest on your remaining balance.

That said, those with a financial goal of getting the highest yield from their interest-bearing accounts may want to opt for a money market or savings account.

And if you’re considering your options, consider our list of the best checking accounts.