An interest-bearing checking account is an option for consumers who are looking to earn interest on the account balance — unlike standard checking accounts.

Checking accounts are primarily used for spending rather than saving, so it’s less common to find a checking account that pays interest than one that doesn’t.

How do interest checking accounts work?

An interest checking account pays interest on the balance of the account, typically monthly.

Though savings accounts generally earn higher yields than checking accounts, having an interest-bearing checking account allows you to earn interest on the money in all of your accounts.

How interest-bearing accounts differ from other checking accounts

Earning interest is really the only difference between an interest-bearing and regular checking account, though an interest checking account may require a higher balance to avoid a monthly fee. There are exceptions, usually at online banks.

Bankrate’s 2021 checking account and ATM fee study found that interest checking accounts have an average monthly fee of $16.35, which was a record. Noninterest checking accounts had an average monthly fee of only $5.08.

How do interest checking accounts compare to MMAs?

Checking and money market accounts have some similarities, such as check-writing privileges, but they also differ. Before April 2020, most money market accounts were restricted to six certain withdrawals or transfers per monthly statement period. The Federal Reserve has since removed this restriction, but some banks still restrict the number of monthly withdrawals on money market accounts.  Interest checking accounts generally don’t have withdrawal restrictions.

Pros of interest checking accounts

Interest-bearing checking accounts allow you to earn interest on the account balance, which regular checking accounts don’t provide. It makes sense to earn interest on all your bank accounts, as long as there are no monthly service fees or if they can be easily avoided with direct deposit or by maintaining a minimum balance.

Cons of interest checking accounts

On the downside, interest-bearing checking accounts may:

  • Have higher minimum balance requirements to waive monthly service fees. On average customers needed $505.22 to avoid the monthly service fee on an interest checking account, according to Bankrate’s 2021 fee survey. That’s $343.09 more than the average minimum deposit needed on a noninterest checking account.
  • Have caps on the amount of money that will earn a competitive interest rate. That’s especially true for interest checking accounts that earn a higher yield than the most competitive high-yield savings accounts.
  • Require a certain number of debit card transactions and have a direct deposit to get a very competitive yield.
  • Earn less interest than a high-yield savings account at some online banks.
  • Not offer a competitive annual percentage yield (APY).

Bottom line

It’s smart to consider having all of your money in interest-bearing accounts. Earning interest on your checking account can help you add to your account balance, even given the current low-rate environment. To save even more, choose an account that charges no monthly service fee or let’s you avoid the fee by maintaining a minimum monthly balance.

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