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Banking Basics

What Are High-Interest Checking Accounts?

Learn the ins and outs of high-interest checking accounts to figure out if this is the best option for you.

Emily Clemens • May 11, 2021

High-interest checking accounts are checking accounts that provide you with an above-average interest payment based on your account balance. This is ideal for account holders with large amounts of funds in their bank account. Interest rates are listed as a percentage, such as 1.00% APY (annual percentage yield)

High-interest checking accounts may also be called high-yield checking accounts or rewards checking accounts

In This Article

  1. How Does a High-Interest Checking Account Work?
  2. High-Interest Savings vs. High-Interest Checking
  3. What Are the Pros and Cons of a High-Interest Checking Account?
  4. How Much Does a High-Interest Checking Account Cost?
  5. High-Interest Checking Account FAQs
  6. Final Thoughts

How Does a High-Interest Checking Account Work?

High-interest checking accounts work similarly to a normal checking account but with the ability to earn interest. You can deposit and withdraw money and are given a debit card. You then earn interest based on your balance. 

Earning interest means the bank takes a percentage of your balance and pays you that amount. To be considered a “high-interest” checking account, this percentage (APY) is above average. According to the Federal Deposit Insurance Corporation (FDIC), the average checking interest rate is 0.03% (as of April 2021).

Each bank or credit union will set its own APY. This may vary based on the account. Some banks will also give you a higher APY for larger balances. For example, you may earn 0.01% interest on a balance of up to $10,000, but 0.02% interest on a $100,000+ balance. 

APY (Annual Percentage Yield)

APY is the amount of money a bank account earns in 1 year. This includes compound interest. A higher APY means a higher interest payment.

High-Interest Savings vs. High-Interest Checking

High-interest savings accounts function similarly to high-interest checking accounts. Compared to the 0.03% average interest rate for checking, the average savings interest rate is 0.06%. Just like high-yield checking, high-interest savings accounts pay you a percentage of your balance. With “high interest” accounts, this rate often exceeds that 0.06%.

Interest-earning savings accounts are typically more common. Checking accounts tend to be more active with money frequently being deposited and withdrawn from the account. Savings accounts are often less active with slow, long-term growth. There are fewer withdrawals as people aim to keep their balance growing over time.  

High-yield accounts can fluctuate if the interest rate is not fixed. In other words, the percentage of interest you earn when you sign up could change at any time. 

What Are the Pros and Cons of a High-Interest Checking Account?

High-interest checking accounts have both benefits and drawbacks. They may help you grow your balance if you meet certain requirements. They may also encourage you to spend less to keep a higher balance for more interest. 

There are also drawbacks to consider. Many of these accounts have large opening deposits and ongoing balance requirements. This means you need a large sum of money in your account each month to maintain all of the benefits. Rates can also be unpredictable, especially if there is a variable APY. In other words, the interest you earn when you open an account can change at any time. 

Oftentimes, accounts with a lot of great benefits have hidden fees. If you’re not aware of these upfront, you may be surprised with charges each month. 

How Much Does a High-Interest Checking Account Cost?

High-interest checking accounts may have higher fees. Common fees and costs include: 

It’s important to understand all fees and balance requirements when considering a high-interest bank account. For many, banking with no fees is a priority. If that’s the case, you may consider signing up with Chime. No hidden fees² and no minimum balance requirements offer you flexibility when managing your money. 

High-Interest Checking Account FAQs

Are interest-earning bank accounts worth it?

Interest-earning bank accounts have pros and cons. You have the potential to earn a little extra money each month based on your balance. But you must also be aware of the account requirements, like what minimum balance you must have to earn interest.

What is a good checking account interest rate?

The average APY for interest-earning checking accounts is 0.03%. Some banks have lower rates and some have higher. Ultimately, it depends on the bank you choose, what type of account, and what your balance is. 

What fees are associated with a high-interest checking account?

High-interest checking accounts may have an opening deposit requirement, minimum balance requirement, monthly service fee, overdraft fee, ATM fee, and other hidden fees. Look into every possible fee so you know where your money is going. 

Final Thoughts

A high-interest checking account pays you a small percentage based on your account balance. This is ideal for people with large amounts of money in their accounts. However, make sure you’re looking into not just how much money you might get, but also how much you’ll be spending to make the best decision for you and your bank account. 

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1 The Annual Percentage Yield ("APY") for the Chime Savings Account is variable and may change at any time. The disclosed APY is effective as of August 1, 2021. No minimum balance required. Must have $0.01 in savings to earn interest.

2 Out-of-network ATM withdrawal fees apply except at MoneyPass ATMs in a 7-Eleven location or any Allpoint or Visa Plus Alliance ATM. Other fees such as third-party and cash deposit fees may apply.

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