Earn Interest and get Free Checking in the Same Account

Accounts that Pay Dividends

Close up of stacks of coins
Even a small amount of interest helps you grow your savings. Chris Bailey / Getty Images

Free checking accounts are great because you get great features at no cost. But they often skip one important feature: the ability to earn interest on your money in the bank.

Savings and CDs obviously pay, but what about accounts that earn interest and give you easy access to cash? It's nice to have the ability to spend, whether by debit card, online bill payment, or old-fashioned paper checks. Savings accounts limit the number of certain outgoing transactions each month, so they typically don't allow you to do much besides make withdrawals or transfer to checking.

Fortunately, you've got other options.

Money market accounts pay a high level of interest, often paying as much or more than savings accounts. What's more, you've got access to your money - you can often spend with a debit card or write a check to use that money. The catch is that there are limits on how frequently you can take advantage of those options. Six per month is on the high end, but some accounts set the limit at three per month.

Interest checking accounts are another option. These are fully-functioning checking accounts, meaning there are virtually no limits to how often you can spend from the account. These accounts can be found at traditional banks, credit unions, and they're especially easy to find at credit unions.

Some interest checking accounts, known as reward checking, pay extremely high rates, but they require that you meet certain criteria in order to earn interest. For example, you might have to use your debit card at least 10 times per month and sign up for online statements.

If you don't meet the criteria, you won't earn interest that month. 

Other banks (especially online banks) pay interest at competitive rates and it's easy to qualify for those earnings - even in a checking account. Online banks often charge no monthly maintenance fees, and there are no minimum balance requirements to get started.

For an idea on where to find these accounts, look at Ally Bank.

Linking your checking account to an interest-bearing savings account is an option if you can't get a checking account that pays interest. This can be done within your existing bank (transfers between checking and savings are more or less instant), or you can link to an external account.

Online bank accounts often pay more than brick-and-mortar banks, so you might just need to open an online-only account and link that account to your everyday checking account. Transfers usually take three business days or so, so you’ll need to plan ahead (just a bit) – unless you also set up online bill pay at your online bank. Although funds might show up in your account shortly after you request a transfer, they might not be available for withdrawal (or spending) right away – make sure you get familiar with the timing so you don’t miss any important payments.

What are Dividends?

You might be familiar with interest payments in your bank account, but what about "dividends"? Dividends in a bank account are basically the same as interest payments. The term dividends is most often used at credit unions, as opposed to banks. Credit unions are customer-owned institutions, and they have a language of their own.

For example, a savings account at a credit union is known as a "share account" because it represents your share of ownership in the credit union (and those accounts pay monthly dividends).

For more information, learn how credit unions work. They are often friendly, community-focused institutions.