checking

Who needs a high-yield checking account?

Todd Sandler, head of product strategy at Wilmington, Del.-based ING Direct, says people who "want low fees and are self-directed and comfortable banking online" can benefit from an online checking account that pays interest.

CD ladder might be better

There are also other situations in which a high-yield checking account might not be a good option. DesBarres cites two: young people, whose long-term savings should be invested more aggressively to overcome the effect of inflation, and seniors who spend more than they can afford or are at risk of exploitation or undue influence. Those older folks might be better off with a ladder of certificates of deposit, or CDs, with varying maturities. A ladder can raise the overall rate of return while still ensuring that regular sums become liquid as needed, DesBarres says.

"If there are takers in their lives, we will often suggest they move (cash) into something like a CD where nobody can get to it. It's safe and the senior can say, 'I'm sorry, but I just don't have any money to give you,'" DesBarres says.

A high-yield checking account also might not be a good choice for people who want to more actively manage their money as they seek higher returns, Krane says. For them, a basic free checking account linked to a savings or investment account that earns a higher return can be a better option than an interest-bearing checking account. This approach also offers more flexibility than being locked into a package of services with one financial institution.

"You don't want to get stuck at a bank where they're charging you $10, $20 or $30 a month to have a checking account," Krane says.

'High-interest' account

Consumers who want to open a high-yield checking account should be aware that not all institutions use this term. In fact, Black and Sandler seem downright uncomfortable about the interest-rate issue, preferring instead to talk about other banking products or account benefits. Banks sometimes call them "rewards checking" accounts.

In addition, Krane says the term "high-yield" can be misleading since it's more often associated with junk bonds than with checking accounts. "High-interest would be a better term (because) there is no investment component," he says.

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