There was a time when you opened a checking account, and the bank not only gave you a toaster, but paid you interest on your account. The rate wasn’t as much as a savings account, but it was still reasonable. It was seemingly a fair deal. After all, the bank was lending your money to other people and charging them an interest rate higher than the one they were paying you. Those days are long gone. The banks still lend out your money, but if it’s in a checking account, you’re likely not seeing a dime. Indeed, you might even be paying to have a checking account. Savings accounts aren’t much better. Banks know you need a checking account, and therefore can charge you fees while declining to pay you any interest. There are exceptions, though.
You can find high-yield checking accounts, but be prepared to endure a lot of restrictions and conditions. One common limitation is the minimum balance requirement, which can be as high as $10,000 or as low as $500.[1] The latter keeps people from using these accounts as a savings vehicle. In any case, any money above or below the limit earns the default interest rate — usually a fraction of a percent. Alternately, you’ll be charged a monthly fee for not meeting all of the monthly requirements. Beware, too, of high interest rates that are only offered for 3 to 6 months. Banks use these teaser rates in the hope that once you’re set up with an account, you’ll be less likely to go through the trouble of closing it and going somewhere else [2]
Often depositors are also obligated to make a set number of debit card transactions per month, and set up direct deposit and automatic bill payment. The minimum number of debit transactions is the biggest challenge for customers seeking high yield checking accounts. [2] Some banks offer the high rates to local customers only. Most, however, offer them nationally and those institutions can be accessed via the Internet.
Barclays, Britain’s second largest bank, recently began offering online savings accounts to U.S. customers with an interest rate of up to 1% with no minimum balance. At this point Barclays has no plans to open brick-and-mortar branches in the U.S., but sees the American market as a great source for capital. It also needs to satisfy regulatory requirements that its other U.S. operations be locally funded. This of course benefits consumers as Barclays needs to offer the higher rates in order to attract deposits. No word yet, though, on whether or not they will offer a checking account as well.[3]
Credit unions are also more likely to offer high-interest checking and savings. Over the years membership requirements have broadened, meaning you don’t have to belong to a particular company or be in a specific vocation to join a certain credit union. Shop wisely, though. It’s often a better deal to go with an institution’s free checking as opposed to the high-interest account, which may be subject to fees and other conditions.[4]
Byline:
PF Wilson writes articles for Allied Cash about online commerce, responsible borrowing, investment, and budgeting. Click here to learn more about their payday loan and cash advance services.
References:
[1] Schultz, Jennifer Saranow. “High-Yield Checking Comes With Strings Attached,” New York Times, Bucks Blog. Web. 17 Otcober 2012 http://bucks.blogs.nytimes.com/2010/04/01/high-yield-checking-comes-with-strings-attached/
[2] Geffner, Marcie. “Winners & Losers of High-Yield Checking,” Bankrate.com/FoxBusinessNews.com, Web. 17 October 2012. http://www.foxbusiness.com/personal-finance/2011/06/28/winners-losers-high-yield-checking/#ixzz1RRIZQkfY
3] Colechester, Max and Enrich, David. “Barclays Plans Online Bank To Draw In U.S. Deposits.” The Wall Street Journal. WSJ.com. Web. 17 October 2012 http://online.wsj.com/article/SB10001424052702304488504577384100381710504.html
[4] Tumin, Ken. “Best Checking Accounts Often at Credit Unions – an Update to the All-Access List.” Depositaccounts.com. Web. 17 October 2012http://www.depositaccounts.com/blog/2012/10/best-checking-accounts-often-at-credit-unions-an-update-to-the-allaccess-list.html
