High-Yield vs. Standard Checking Accounts

When you put money into an account, you would obviously like to see those funds grow over time. So why settle for a standard, low-interest checking account instead of choosing a high-interest option?

The answer depends on your individual financial situation. If you prefer having quick access to your money, keeping account balances low, and don’t mind maintaining a high level of banking activity, high-interest checking could be for you. If you want to keep your balance high and leave your account alone for the most part, maintaining a standard checking account might be a better idea.

Higher APY, greater demands

At first glance, a checking account with a higher APY might seem like the obvious choice. Interest rates on high-yield checking accounts can be nearly as good as a high-yield savings account.

There are a couple of strings attached to high-yield accounts.

First, you are generally required to keep your account balance fairly low. This is because banks do not want to have you deposit $50,000 in a checking account and make them deliver 6% interest on such a high balance. Maximum balances on high-interest checking accounts typically run between $10,000 and $50,000, with some exceptions.

Second, you’ll need to be an active customer. To offer such high-interest rates, banks need to earn the interchange fees that come from debit card transfers and send traffic to their online products. Many of these reward checking accounts require 10 or more debit card transactions per month, use of direct deposit service and a certain number of online bill pay transactions each month.

Meeting those requirements might not be a problem if you frequently pay with a card and already use online banking services, but for many people who are accustomed to paying with cash and banking traditionally, making frequent transactions could be inconvenient.

Traditional checking often offers convenience

While standard checking accounts’ interest rates pale in comparison to those offered by high-yield accounts, low-interest options do typically come with some perks.

National, brick-and-mortar institutions are more likely to offer low-interest accounts. Compared to Internet banks, these standard banks are more likely to have better accessibility. Nationwide banks offer multiple branches and ATMs and correspondingly high levels of customer service. Because checking accounts tend to need more hands-on attention than CDs or savings accounts (ATM withdrawals, check writing, deposits and bill payment), having a branch nearby can be handy.