High-interest checking accounts: Deal or no deal?

By Sierra Black

If you've had the same checking account since high school, odds are good you're leaving money lying on the table every time you make a deposit at the bank.

Most traditional checking accounts pay little or no interest. Many so-called "interest checking accounts" pay such a low rate that it's hardly worth the ink to record the few added pennies on your statement. An interest rate of 0.06 percent is 6 cents per year on a hundred dollars. Big whoop. Many banks even charge you a monthly fee for the privilege of doing business with them.

There's some sound business sense behind that observation, though: most of us simply park our paychecks in our checking accounts. It's a brief stopping place for money that's either earmarked for paying bills or on its way to a high-interest savings account. We don't keep large, long-term deposits in our checking accounts. As a result, banks can't make as much money investing our funds. That, in turn, justifies paying no more than a token interest rate on those deposits.

High-interest checking accounts

High-interest checking accounts, or high-yield checking accounts, are different. Exactly as the name implies, they're checking accounts that offer a high interest rate on your deposits. Even if the money is only there for a few days, that's a few days you could be earning interest on it. A good amount of interest, too.

Banks and large corporations know that over time, small interest earnings add up. They're eager to invest money they hold for only a few days. You should be too.

A high-interest checking account lets you earn a better return on every dollar you make. Your grocery money, your phone bill funds, all your day to day living expenses earn a little bit of interest before they move on to pay your bills. That's good financial sense, even if the interest payments are only a handful of cents at first.

Read the fine print

High-interest checking accounts often offer interest rates comparable to, or even higher than, high-interest savings accounts.

These great interest rates come with restrictions, but they tend to be fairly simple hoops to jump through. High interest checking accounts are easiest to find at online banks. Many require that you use direct deposit, maintain a minimum balance and use a certain number of "signature-based" transactions each month.

Shop around

Not all high-interest checking accounts are created equal. Their interest rates can vary widely, and so can the restrictions on the accounts. Start by researching the best interest rates. Ultimately, the interest rate is your most important factor.

You also want to look at the restrictions on each high-interest checking account and be sure you can live with them. If you run a cash-based business, for example, you probably don't want to choose an account that requires direct deposit.

Moving your money to a high-interest checking account may take a little work, but it will pay off. You'll be earning interest on your deposits that can add up to real dollars in your checking or savings account pretty quickly.