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Often, checking accounts accrue no interest or very little. Nationwide, the average annual percentage yield (APY) on checking accounts is a meager 0.03%, which could add up to a few dollars every few years, depending on your balance.
A high-yield checking account is a special type of account offered by some banks and credit unions that offers a higher-than-average APY. While interest rates vary, high-yield checking accounts currently offer APYs of up to 4%. Let's go over how a high-yield checking account works and whether it's worth it to open one.
How Do High-Yield Checking Accounts Work?
A high-yield checking account works like a standard interest-earning checking account but with a higher APY. To qualify for the highest rate the checking account has to offer, you might need to meet the following conditions:
- Have a certain number of debit card transactions in a month
- Have at least one direct deposit or automated clearing house (ACH) payment each month
- Log in to your online account at least once per month
- Sign up for online banking
- Choose to receive e-statements
In some cases, financial institutions will also have differing rate tiers for your balance. For example, checking account balances up to $5,000 might earn 3% APY, or any part of a balance that exceeds $3,000 could earn less.
When shopping around for a high-yield checking account, here are features to compare to find the best checking account for your needs:
- Interest rate: Interest rates for high-yield checking accounts are variable, which means the rate you receive at signing may not stick around forever. And if you don't meet the requirements each month to get the high rate, your interest earnings could be lower.
- Fees: Like standard checking accounts, high-yield checking accounts may have maintenance fees and other fees charged depending on how you use your account. For example, you could be charged a fee for sending wire transfers or a fee if you write a check that's returned due to insufficient funds.
- Balance requirements: High-yield checking accounts may have minimum deposit requirements to open; however, some accounts let you get started with $0.
- Withdrawals: High-yield checking accounts come with debit cards for withdrawals, and you may be able to order checks for payments. Like standard checking accounts, you can also make internal and external transfers to move money in and out of your account.
- Deposits: Banks that offer high-yield checking accounts may have remote check deposit capabilities through an app, and you can make cash deposits at ATMs or branches.
- ATM access: ATM access and fees will vary by bank and credit union, but some financial institutions offer access to a free network of ATMs across the country.
High-Yield Checking Account vs. High-Yield Savings Account
Both high-yield checking accounts and high-yield savings accounts offer a higher APY compared with standard checking and savings accounts, but they're not one and the same.
A checking account is a type of account for everyday transactions, while a savings account is a place to stash money that you're putting away for a later date and not planning to dip into often. Here's how high-yield checking and savings accounts differ.
| High-Yield Checking Accounts | High-Yield Savings Accounts | |
|---|---|---|
| APY | 1% to 4% or higher* | 1% to 3%* |
| Requirements | You may be required to meet special conditions to earn the highest APY | You could earn interest just for having money in the account |
| Purpose | Designed for day-to-day transactions and debit card purchases | Designed for emergency savings or savings you're putting away toward another goal |
| Access to cash | Comes with a debit card, and you may be able to order checks | Might come with a checkbook or debit card upon request, but withdrawals could be limited |
| Availability | Niche product offered by select banks and credit unions | Widely available |
*Rates as of 9/12/22
Is a High-Yield Checking Account Worth It?
The main drawback of a high-yield checking account is that a limited number of banks and credit unions offer them. Ultimately, you'll have to decide whether the process of switching banks or joining a new credit union for the checking account is worth earning a higher APY.
Opening a high-yield checking account could make sense if you maintain a high checking account balance and you're motivated to earn a better return on your money. In this scenario, you might be more inclined to do what's necessary to meet the requirements for the high APY.
However, a regular checking account may suffice if you find keeping up with requirements too cumbersome. Also, consider that earnings on a checking account may be taxable, and interest isn't the only important factor to consider when choosing a checking account.
Access to a network of ATMs, online banking features, branch locations and availability of other banking services could make one checking account a better choice than another, even if it doesn't offer the highest APY around.
The Bottom Line
Interest offered on checking accounts isn't meant to make you rich, but high-yield checking accounts give you an opportunity to earn a bit more than you would in a standard checking account. Before moving your money to a new credit union or bank offering a high-yield checking account, you could use an APY calculator to figure out what you stand to gain by opening a new account and whether it's enough to justify opening one.