Checking accounts aren’t known for paying gangbuster interest rates, but that’s not usually the point: They are designed to provide unfettered access to your money and tools that make it easy to manage day-to-day financial needs. High-yield savings accounts, on the other hand, are basically the opposite: They pay a decent interest rate, but account restrictions make it clunky for everyday money management.
Then one day, two bank employees from different departments started talking during their coffee break. They decided to combine forces and — voila! — the high-yield checking account, (aka a high-interest checking account) was born.
How does a high-yield checking account work?
A high-yield checking account combines the functionality of a regular checking account and the interest rates offered by high-yield savings accounts. Like a traditional checking account, these accounts come with a debit card (for ATM access and purchases), check-writing functionality (e.g. electronic bill payments) and remote check deposit. (These are some of the things that make a high-yield checking account different from a high-yield savings account.) These accounts are FDIC insured (or NCUA insured, if offered at a credit union) up to $250,000 per depositor per ownership category.
The biggest difference between a high-yield checking account and a regular checking account is how much interest the bank pays on your balance.
How much interest do high-interest checking accounts pay?
Currently, the average interest rate for a regular bank checking account is 0.06%. But many banks pay less or nothing at all. High-interest checking accounts currently advertise annual percentage yields (APYs) as high as 4%.
I, too, felt awash with euphoria when I saw those rates. And then I read the fine print.
There are limits to how much you can earn at the highest APY rate. Banks phase out or cut off interest rates on account balances above a certain amount, usually above $10,000 to $20,000.
For example, Consumers Credit Union, one of the top high-yield checking account choices at thebalance.com, pays a phased APY of 4.09% on the first $10,000, 0.20% on amounts between $10,001 and $25,0000, and 0.10% on $25,001 and up.
Given the low APYs regular checking accounts pay — reminder: an average of 0.06% — the balance caps on high-interest checking accounts really aren’t a huge turnoff. That said, first make sure you’re willing to do what is required to earn the highest rates.
SEE ALSO: High-Yield Savings Account vs. High-Yield Checking Account: How to choose
Rules for earning the highest advertised rate
The requirements to qualify for that bold-print “up to 4%-point-something” advertised and asterisked interest rate include:
Meet the minimum opening balance requirement and/or monthly deposit: In our research, many high-yield checking accounts have no (or a low) initial deposit requirement. However, there are some that require account holders to deposit a certain dollar amount each month to qualify for the high APY going forward.
Agree to certain monthly transactions: In exchange for paying out a higher rate of interest, banks want consumers to perform some revenue-generating activities. Some common requirements to earn the highest interest rate offered:
- Make 12 to 15 debit card purchases per month (to generate a merchant processing fee for themselves)
- Sign up for direct deposit of a certain dollar amount per month
- Set up a minimum number of online bill payments
Pay membership dues: Credit unions offer some of the highest rates on high-interest checking accounts, but you have to be a member. That can be as easy as living in the state where the credit union does business, making a $5 donation to a charity or foundation of the bank’s choosing, and keeping a minimum amount ($5 to $20) in your account.
Failure to abide by all the rules may cost you in fees, or lead to you losing the higher interest rate you signed up to earn in the first place. So make sure you’re willing and able to do what it takes to get the full payoff of a high-yield checking account.
More high-yield reading on HerMoney.com:
- Are High-Yield Savings Accounts Even Worth it These Days?
- High-Yield Savings Account vs. High-Yield Checking Account: How to choose
- How Many Bank Accounts Should I Have?
- What Is an Interest-Bearing Account?
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