What Is an Interest Checking Account?

Basics and Pitfalls of Interest Checking Accounts

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Interest checking accounts allow you to earn interest on easily accessible cash. They’re like a mix between checking accounts and savings accounts, a perfect combination for many consumers. Get a better understanding of such accounts by looking at the basics and some of the major providers of interest checking.

Why Should You Choose Interest Checking Accounts?

What’s so great about these accounts? Traditionally you had a tradeoff between easy access (via a checkbook or debit cards) and higher interest earnings.

With interest checking, you get the best of both worlds. You can write checks, use a debit card, make ACH transfers and earn a competitive return on your cash. If these perks strike a chord with you, an interest checking account will likely be ideal for you.

Interest Checking Pitfalls

While interest checking comes with a number of benefits, some interest checking accounts have restrictions. Make sure you know what they are before opening the account. Start by understanding your needs. What do you need an interest checking account for and how are you going to use it? Once you've outlined this, you can easily decide if the limitations will or will not work for you. 

Some common pitfalls to watch for include a limited number of transfers in the account per month, minimum balance requirements and bounced check fees (see if they offer an overdraft line of credit).

Types of Interest Checking Accounts

There are two major types of interest checking accounts.

The first type is a plain-vanilla account online that pays interest and offers checking features. The next type is a money market account, which technically isn't a checking account. Finally, reward checking accounts generally have more restrictions and are harder to qualify for, but they pay the most interest.

Online Banking Providers

For plain-vanilla interest checking accounts, online banks are a great place to start. Those accounts often pay more than you can earn in savings accounts at traditional brick-and-mortar banks. Need a few ideas? Start with these two reviews of Capital One 360 (formerly ING Direct) and Ally Bank.

Money Market Accounts

While not technically checking accounts, money market accounts might provide what you're looking for. These accounts fall into the category of savings accounts, but they pay a little bit more than most savings accounts, and they offer limited check writing. However, you'll need to write six or fewer checks per month out of these accounts (so they're best for infrequent expenses).

If you're unfamiliar with money market accounts, do some online research to get the basics.

Reward Checking Accounts

"Reward" interest checking accounts are harder to find and qualify for. That's because you'll only earn interest if you meet certain requirements, and that can take some work. Sometimes you have to visit the bank in person to open an account, but they generally pay a very competitive annual percentage yield (APY) - even higher than long term CDs in some cases.

Improve your understanding of how reward checking works before signing up for one of these accounts.