What is an interest checking account?

Unlike savings accounts, most checking accounts don’t earn any interest on funds in the account. There are a few exceptions, though, and these are referred to as interest checking accounts.

Checking accounts are primarily used for spending rather than saving, which is why it’s less common to find a checking account that pays interest than one that doesn’t. Those that do pay interest typically pay less than savings products do, but they can still help boost your balance.

How do interest checking accounts work?

An interest checking account pays interest on the balance of the account, typically monthly. The account may require you to meet a minimum balance threshold or receive a specified amount in direct deposits each month to earn interest.

Like other checking accounts, interest checking accounts are primarily designed for everyday transactions. You can make unlimited withdrawals from them and use them to write checks and pay bills.

Though savings accounts generally earn higher yields than checking accounts, having an interest-bearing checking account allows you to earn interest on the money in all of your accounts and increase your available spending money or contribute to savings.

How interest-bearing accounts differ from other checking accounts

Earning interest is really the only difference between an interest-bearing and regular checking account, though an interest checking account may require a higher balance to avoid a monthly fee. There are exceptions, usually at online banks.

Bankrate’s latest checking account and ATM fee study found that interest checking accounts have an average monthly fee of $16.19 — nearly triple the average fee for noninterest checking accounts, which is $5.44. Additionally, only 7 percent of interest checking accounts come with no monthly fee, while almost half (46 percent) of noninterest accounts are free.

How do interest checking accounts compare to MMAs?

Checking and money market accounts have some similarities, such as check-writing privileges, but they also differ.

Before April 2020, most money market accounts were restricted to six certain withdrawals or transfers per monthly statement period. The Federal Reserve has since removed this restriction, but some banks still restrict the number of monthly withdrawals on money market accounts. Interest checking accounts generally don’t have withdrawal restrictions.

Pros of interest checking accounts

Interest-bearing checking accounts allow you to earn interest on the account balance, which regular checking accounts don’t provide. It makes sense to earn interest on all your bank accounts, as long as there are no monthly service fees or if they can be easily avoided with direct deposit or by maintaining a minimum balance.

Cons of interest checking accounts

On the downside, interest-bearing checking accounts may:

• Have higher minimum balance requirements to waive monthly service fees. On average, customers needed $9,658 to avoid the monthly service fee on an interest checking account, according to Bankrate’s 2022 fee survey. The average minimum needed for noninterest checking accounts was $539.
• Have caps on the amount of money that will earn a competitive interest rate. That’s especially true for interest checking accounts that earn a higher yield than the most competitive high-yield savings accounts.
• Require a certain number of debit card transactions and have a direct deposit to get a very competitive yield.
• Earn less interest than a high-yield savings account — the average rate on interest checking accounts in 2022 was only 0.03 percent APY.

Bottom line

It’s smart to consider having all of your money in interest-bearing accounts. Earning interest on your checking account can help you add to your account balance, even given the lower rates than you’d get with a savings account. To save even more, choose an account that charges no monthly service fee or lets you avoid the fee by maintaining a minimum monthly balance.

Make sure that you’re keeping savings in a savings account or nontransactional account, though, where it has the potential to earn a higher yield and there are limits to keep you from spending it.

— Bankrate’s René Bennett contributed to an update of this story.