An interest bearing checking account is something everyone should consider. Who wouldn’t like to earn extra money without increasing their risk exposure?
If you’re wondering what is an interesting bearing checking account, or why you should consider having one, this article is for you. We’ll cover everything you need to know.
How Does an Interest Bearing Checking Account Work?
First and foremost, how does an interest bearing checking account work? Simply put, these accounts function just like a traditional checking account, however, the account earns a greater interest rate.
For example, if a traditional checking account earns 0.10% interest per year, an interest bearing checking account may earn 0.50% interest per year. You’re getting a greater rate of return, but everything you grew to love about a traditional checking account is still present. You can: deposit money, withdraw cash, send or receive wire transfers, and write checks.
What Is Required to Open an Interest Bearing Checking Account?
There is not a ‘one size fits all’ requirement for opening an interest bearing checking account. The requirements change depending on the bank or credit union. On a high level, most financial institutions will require:
- Proof of ID. A drivers license, passport or social security card will suffice
- An initial opening deposit. This can range from $25 – $100’s of dollars
How Much Do High Interest Checking Accounts Cost?
Checking accounts are known to have fees, and high interest checking accounts are certainly no exception. Three of the most common fees include:
- A monthly maintenance fee
- A minimum account balance fee
- Overdraft fees
The fees range by financial instruction. Sometimes these fees can be waived if various criteria are met. For instance, a monthly maintenance fee can be waived if the account balance exceeds ‘X’ amount at a specific bank.
Can I Open an Interest Bearing Checking Account at a Credit Union?
Absolutely! Credit unions are a great place to open an interest bearing checking account. It’s not uncommon for a credit union to also have a more lenient and flexible fee structure.
How To Get an Interest Bearing Checking Account With Bad Credit
It is possible to open this type of checking account with bad credit, but it may be more challenging. The best thing you can do if you have bad credit is work on improving that credit score! Common steps include:
- Work with a credit repair specialist
- Open a basic checking account with a prepaid debit card
- Start paying off your debt, and your bills, on time
What Is Another Name for an Interest Bearing Checking Account?
This type of checking account is also known as a high interest checking account.
Best Features/Functions of Interest Bearing Checking Accounts
When you look to open a high interest checking account, take the following factors into consideration.
The Interest Rate
Believe it or not, the interest rate can vary by financial instruction. A large banking corporation may offer an interest rate of 0.2% on their high interest checking account, whereas a credit union may offer an interest rate of 1%.
Beware of the Fees
Be sure to review the entire fee structure of the account. Pay extra close attention to the; maintenance fee, minimum account balance fee, and the overdraft fee. These fees tend to add up quickly and can offset any interest gain you received on the account.
Additional Benefits
It’s not uncommon for banks to offer extra incentives to open an account with them. For example, you may receive a free safety deposit box if your high interest checking account maintains a minimum balance of ‘X’, or if you deposit a large opening balance.
Advantages & Disadvantages of Interest Bearing Checking Accounts
Let’s review advantages and disadvantages of an interesting bearing checking account.
Advantages of Interest Bearing Checking Accounts
Some of the most common advantages include:
- Account holders will earn a greater interest rate without increasing their risk profile. Extra money is certainly always helpful!
- Additional benefits a bank or credit union will provide, such as a free safety deposit box or discounts on loans.
- There is a great deal of flexibility and security with checking accounts.
Disadvantages of Interest Bearing Checking Accounts
Despite the benefits a high interest checking account provides, the disadvantages need to be taken into consideration. These include:
- The fees. It’s not uncommon for a bank to charge a fee for a checking account, and it’s not rare for the fees to be a percentage higher on a high interest checking account. These fees quickly add up if you cannot have them waived.
- Although the account is called a high interest checking account, or interest bearing checking account, the interest earned will not be sufficient to be a second revenue stream. By no means is this an investment account.
How To Open a Interest Bearing Checking Account
If you’re interested in open this type of checking account, follow these steps:
Shop Around
Be sure to shop around. The interest rate, fee structure and benefits can change depending on the financial institution. Review all the convenient options out there before making a final decision.
Complete the Application Process
Once you’ve identified which financial institution you want to open the interest bearing checking account with, it’s time to complete the application process. You may need to go into the local branch to do this, but more often than not, this application can be completed online.
Deposit Money
Part of the application process may require you to deposit an initial opening balance. Be sure you have your debit card, or checking account/routing number accessible to complete the initial deposit.
You’re All Set
Once you’ve completed the application process and your initial deposit has been cleared, you are all set! The account is now officially open.
Non-Interest vs Interest Bearing Checking Accounts
The main difference between a traditional checking account and an interesting bearing checking account is the interest rate each account provides. A traditional checking account will not earn as high of an interest rate as a interest bearing checking account.
The Power of Interest
An interest bearing checking account is a great way to earn more money without increasing your risk. Interest bearing checking accounts are FDIC or NCUA insured, and provide a long list of benefits. However, the interest rate one receives on their account is by no means high enough to produce an additional revenue stream.
If you’re interested in earning a great rate of return, reducing your risk profile, and diversifying your investments, working with a professional financial advisor is a great way to accomplish all of the above.
Financial advisors will take an unbiased view of your financial situation, and help you map out how you can reach your financial goals.