We’re all looking for ways to stretch our dollars. It feels good to have some breathing room in the budget to push for our financial goals.
While you can start a side hustle or second job to make extra cash, you may be looking for a more passive way to earn money from your current income. Many banks offer various interest-bearing accounts to achieve this goal. While CDs and high-yield savings accounts are excellent ways to earn passively, you may need an option that allows for more transactions.
That’s where the interest-bearing checking account comes in. If you’ve seen this type of account in your quest to maximize your income, you may have wondered, “What is an interest-bearing checking account, and how does it work?”
Let’s examine this variation of the traditional checking account to see if it’s the best option for you.
What Is an Interest-bearing Checking Account?
An interest-bearing checking account works like a traditional one, as you can withdraw cash, write checks and make debit card transactions. The difference is the earning potential of the account. While most basic checking accounts offer little to no interest, an interest-bearing checking account receives interest payments on the account’s balance.
In exchange for a higher interest rate and regular payment on your checking account, most interest-bearing accounts require one or both of the following criteria:
- A minimum daily balance – Since checking account balances tend to fluctuate, many banks and financial institutions average the balance over the statement period to determine if it meets the daily balance requirement.
- Regular activity – This activity can include a minimum number of transactions or direct deposits into the account to ensure you use your account regularly.
If you do not meet these requirements, you may have to pay a maintenance charge or penalty fee. Many banks that offer interest-bearing checking accounts have multiple tiers with different minimum requirements. It’s essential to check the account disclosures carefully before opening one.
Community Point Bank offers two tiers of interest-bearing accounts, NOW and Super NOW. Each carries a different interest rate, minimum daily balance and maintenance charge. To learn more about these and our rewards checking accounts, visit our Checking Accounts service page.
Now that we’ve covered the basics of an interest-bearing checking account, let’s see how they compare to rewards checking accounts.
What Is a Rewards Checking Account?
A rewards checking account offers perks beyond a standard account. These accounts are often interest-bearing, but that is not standard across all rewards checking accounts. Like interest-bearing accounts, most rewards checking accounts have minimum balance and activity requirements to avoid maintenance fees.
In addition to earning interest on your account balance, here are some other perks you may see with a rewards checking account:
- Cashback rewards
- Discounts at partner retailers
- Discounts on other banking services
- Access to financial education resources
Like interest-bearing checking accounts, it’s important to check the disclosures of the specific account before opening one.
Can I Open a Rewards Checking or an Interest-bearing Checking Account?
In most cases, you should be able to find an interest-bearing or rewards checking account that works for you. Many financial institutions offer tiered interest-bearing and rewards checking accounts to accommodate customers at different stages of their financial journeys.
Three Questions to Ask Before Opening an Interest-bearing Checking Account
If you think an interest-bearing checking account is a viable option to make some extra cash, let’s cover just a few questions you need to ask yourself before opening one.
- Can I maintain the minimum requirements of an interest-bearing checking account? If you don’t regularly avoid maintenance charges, you won’t get the most out of your account. It’s a great idea to look at your account balance and activity over the last few months to see if you can comfortably meet those requirements.
- Will this account help me maximize my earnings? Interest-bearing checking accounts offer significant flexibility, allowing you to earn interest without limiting your transactions, deposits or withdrawals. However, if you don’t need this level of flexibility, a money market account or certificate of deposit may offer a better return on investment.
- Is the account with a financial institution I can trust? Finally, you only want to open a new bank account with a trustworthy financial institution. Choosing a local financial institution is a great idea, as locally-owned banks want to reinvest in your community.
If you’re interested in an interest-bearing checking account, rewards checking account or other banking service to help you do more with your money, visit our Services page or head to one of our three locations to learn more.
