Interest paying accounts are not right for everyone
The financial landscape of 2009 just doesn’t favor middle-America. Those who keep small balances in their checking accounts often incur finance charges for the transgression, but they can’t put their money in interest-bearing accounts like Money Markets and CDs because they don’t meet the minimum requirements. An interest-bearing checking account sounds like a great idea, but it’s often more hassle than it’s worth.
For one thing, these checking accounts in particular have reached ridiculously low levels. The average interest rate on checking accounts in the U.S. is 0.96%, which won’t yield much return even if you carry a high balance. In fact, more than half of the financial institutions surveyed by Bankrate.com report less than one percent interest for their checking accounts.
Furthermore, you have to have a consistently high balance in order to avoid the finance charges incurred for falling below a specific point. Most U.S. banks and credit unions require customers to keep at least $2,000 in their checking accounts or they are charged a monthly fee. Add that to the tiny 1% interest rate and you wouldn’t do much better if you kept your money in a sock under the mattress.
In contrast, non-interest-bearing checking accounts usually require no more than $500 in the bank every month to avoid penalty fees. You won’t be earning any interest on your money, but you can avoid monthly charges that are sometimes as much as $5.00 subtracted immediately from your account.
In some cases, however, checking accounts with interest are beneficial for the consumer. Everyone has different financial needs and your situation might warrant such an account. For example, if you typically keep a large balance in your bankbook for emergencies and available cash, you wouldn’t have to worry about minimum balance fees.
If you do open this type of account, you can put the bulk of your money in more lucrative investments, but still earn at least nominal interest on the balance in your checking account. In this case, it’s a matter of surveying the most convenient banks in your geographical location, then deciding which one offers the most favorable terms.
In many cases, you may yield the highest results when you investigate Internet banks. These are financial institutions that operate solely online, which means that there aren’t any brick-and-mortar locations. Again, this is a matter of preference, and an Internet bank might not meet your financial needs. For example, if you deposit a large number of checks each month, an Internet bank would probably hold up the deposits.
If you don’t have your heart set on opening an interest-bearing checking account, you can look for more lucrative options at your financial institution. For example, even if your bank’s Money Market Account only offers a 3% interest rate, you’re still going to make more money than leaving your money in a checking account. You can also look into CDs, stocks, bonds and municipal funds.
Whether or not to open an interest-bearing checking account is entirely up to you. Most banking decisions are personal in nature and will change depending on your own situation. Just make sure that you choose the checking account that best suits your needs, taking into account other factors, such as online banking, bill pay and convenience.
Our favorite interest bearing accounts was from the Bank of Internet. The ATM reimbursement of up to $8 a month actually pays you extra you would not have in a standard bank account. Although you can also get this benefit from banks such as E*Trade Bank with a high interest yield.