Only 21% of banked adults have a high-yield savings account, which means many Americans are leaving money on the table each month.
High-yield savings accounts are a clear win for most people, but what about the lesser-known high-yield checking accounts that pair interest earnings with the everyday checking account?
High-yield checking accounts function the same as any other checking account, but offer some sort of return on the money you keep there. While high-yield checking accounts typically have a lower APY than their savings account counterparts, they do offer a way to maximize returns everywhere you keep your money.
A high-yield checking account probably won’t make a significant difference in your financial standing, since you ideally only use your checking account for paying bills and other basic living expenses. But if you’re taking stock of your accounts— or getting one for the first time— it may be worth seeing if an interest-bearing checking account makes sense for you.
High-Yield Checking Accounts
High-yield checking accounts exist primarily at online-only banks, which typically offer better interest rates since they don’t have to maintain the infrastructure required to run a national network of physical banks. These interest-bearing checking accounts have grown in popularity in recent years as more consumers become comfortable with the idea of online-only banks, says Sri Reddy, senior vice president of retirement and income solutions at Principal Financial Group in Des Moines, Iowa.
Remote check deposits and partnerships with different ATM networks have gotten many people past the hurdle of joining a bank without a branch— and some offer great value.
Reddy recommends shopping around for deals both at online banks and credit unions, which often offer high-yield checking account options.
Read the Fine Print
Online-only banks generally offer better rates on high-yield checking accounts, but they also can exist at traditional banks. Make sure to “watch out for the requirements, though” says Reddy. High balance and direct deposit requirements at traditional banks may prevent you from earning the offered interest.
Rebecka Zavaleta, creator of the investing community First Milli, echoes this concern. She experimented with a high-yield checking account that had “way too many requirements,” she says, causing her to “miss the threshold for getting the interest every month.”
Trying to meet these requirements may encourage “unhealthy behaviors,” says William Hatton, a CFP with Billfold Budget Counseling in Los Angeles. If you’re going to be stretching yourself thin to meet a minimum spend or balance requirement for a high-yield checking account, “don’t do it,” says Hatton. “Especially if it’s going to create friction.”
But, if it’s the difference between putting your paycheck in an account earning no interest and an account that does earn interest, “there’s no real downside,” says Reddy. However, a high-yield checking account still isn’t a replacement for your savings account.
“While you want to always maximize how much you’re earning on your money, for the average American, I would really encourage them to also have a separate savings account,” says Reddy. “Most people have a tendency to think of their checking account as the money they’re allowed to play with, so having a separate savings account where you’re funneling away money is helpful.”
How to Transfer
If you’ve decided to move your funds over to a different checking account, make sure you properly handle your previous account.
There’s no negative impact to your credit for closing a checking account, says Reddy, but you could also keep it open as long as you’re maintaining any minimum balance or other requirement to avoid fees.
Make sure you reroute any direct deposits or automatic bill pays to your new account, and, if you do close your account, go through your bank’s necessary channels. Some may require you to fill out a request form, or even speak to someone over the phone.
Many people have a “sticky relationship” with their bank, says Reddy. But this loyalty could be preventing you from getting better products elsewhere, so shop around to make sure you’re really getting the best deals.
“Either you’re making money, or the bank is making it off you,” says Reddy. “Shop around. Know your options.”