Are High Interest Checking Accounts Worth It?

There are a lot of high-interest checking accounts out there these days, but is a high-interest checking account worth it?

The answer depends not only on how you use your checking account, but also the details of each account. As is so often the case with personal finance, the devil is in the fine print details. Be sure to understand all of the fine print before rushing off to transfer your checking accounts.

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High-Interest Checking Account Qualifications

The first thing you want to look at is how to qualify for a high interest checking account. At most banks, getting the highest interest rate on your checking account requires you to make a minimum number of debit card transactions. That is because the bank earns money on each one of those transactions. In a way, with every debit card purchase you make, you earn the money the bank uses to pay you the higher interest.

You also are usually required to get a direct deposit into the checking account each month. For many people, the only direct deposit they could get on a monthly basis is their paycheck. The idea is that by requiring a direct deposit, the bank is motivating you to actually use your high interest checking account as your usual checking account. This is to keep you from opening a new bank account with high interest checking only to earn the high interest, which doesn’t generate fees for the bank. However, keep in mind that many, if not most, employers allow you to split where your paycheck deposits. Feel free to send a fraction of your paycheck as direct deposit and open as many different accounts as you need.

High-Interest Balance Limits

Too many people get seduced by a shiny, high rate on a higher interest checking account without reading all the details. The vast majority of true high interest checking accounts have a limit on how much money actually earns that high interest rate. For example, the Greater Nevada Credit Union has a high-interest checking account called Aspire Checking that earns 3.0%, which is way higher than most savings or money market accounts earn. However, that 3 percent is limited to only the first $15,000 of balances. Everything above that earns a much more normal 0.05% interest rate.

Typically, the higher the rate, the smaller the balance that qualifies for the rate. At the Gateway Metro Federal Credit Union, you can earn a whopping 6.02% APY on one of their checking account products. The catch is that rate only counts on the first $1,500 in balances. In other words, you would come out ahead earning the lower 3.0% interest rate on $15,000 than the much higher 6.02% interest rate on just $1,500.

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How To Use High Interest Checking Accounts

As always, I recommend doing the actual math before doing anything. Exactly how much interest is 3% on $15,000, for example? It comes out to $450 per year. Is it worth it to jump through all the hoops for $450? Only you can answer that question.

The best way to use a high interest checking account is to just put the amount of funds in that allow you to earn the high interest, and put the rest of your money elsewhere, like a money market account, or even a good online savings account. However, that’s what all of those rules and qualifications are for, to make you actually USE the account, and not just soak up the highest interest rate possible.

At many banks and credit unions, you can transfer money using ACH between accounts online, for free. To maximize your interest earnings, take advantage of that by putting excess funds where they earn more money, usually a money market account, especially if you have a higher balance since most financial institutions pay more interest on higher balances.