A checking account allows you to use a debit card, cash checks and access your money with an ATM. But certain checking accounts have other features, too. An interest checking account has the added perk of earning a set interest rate on your cash. Some banks offer checking accounts that help you earn interest and offer other tools and features to support your financial goals. Ally Bank shares some top considerations for whether this type of account is right for you.
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What is an interest checking account?
These accounts give you all the usual checking account functionality like debit cards and ATM use — and allow you to earn a little interest. Compared to other types of bank accounts, checking accounts offer the most flexible access to your money and are perfect for everyday spending.
Interest-bearing checking accounts work a bit like savings or money market accounts: You put money in the account, and the bank periodically pays interest on your balance according to its terms and conditions. They usually have a lower interest rate because they’re designed for everyday use rather than growing savings.
How much interest does a checking account pay?
Interest checking accounts aren’t known for offering extremely high interest rates, but you can still expect to earn something on the balance you maintain. Look for a checking account with competitive rates that provides a favorable annual percentage yield (APY) on your checking account balance, but keep in mind that these rates can change over time.
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Pros and cons of interest checking accounts
If you need standard checking features, look for an account that will allow you to freely withdraw money and make transfers as frequently as you want. Some banking institutions may impose limits and fees depending on the type of checking account, like a minimum balance requirement or limits on your debit card usage, while others won’t offset your interest earnings with any hidden charges.
The drawbacks of an interest checking account are minimal, but if you’re looking for a higher interest rate, consider keeping some money (like your emergency fund) in a high-yield savings account.
Is an interest checking account right for me?
If you’re looking to earn interest and write checks, use your debit card, add physical cash, make withdrawals from an ATM or request cashier’s checks and wire transfers, an interest checking account could be a great choice. Other valuable features to consider include early direct deposit, budgeting tools to track spending and overdraft protection to help support your financial goals.
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How do interest-bearing accounts differ from other checking accounts?
In most ways, an interest checking account will operate the same as any other checking account. You won’t notice a difference in terms of how you can access or use your money — you’ll just receive a little extra from your bank in the form of interest.
Interested in earning interest?
Whether you’re opening a checking account for the first time or researching alternatives to switch, the right spending account can help you optimize your finances.
This story was produced by Ally Bank and reviewed and distributed by Stacker.