Why high-yield checking accounts make sense for you

High-yield savings accounts and certificates of deposits (CDs) have captured the attention of savers amid decades-high inflation and interest rate hikes. But there’s another type of banking vehicle that may be worth considering: a high-yield checking account. 

The best high-yield checking accounts currently come with annual percentage yields (APYs) between 3% and 5% — a decent yield considering the national average rate for interest checking accounts is a measly 0.07%. 

But that yield doesn’t necessarily come easily, requiring a certain amount in direct deposits or a particular number of debit card transactions. Plus, by definition, money is always going in and out of your checking account, so the balance on which you earn that interest can be limited.

Still, knowing that you’re earning a little bit extra in your checking account may give you the positive reinforcement needed to achieve more sophisticated financial goals.

High-yield checking accounts explained

High-yield checking accounts offer a higher interest rate than a typical checking account would. But that comes at a cost for banks, which is why high-yield checking account products tend to be fleeting. 

“In order to attract new customers and new deposits, the high-yield checking has to be priced really close to those high-yield savings rates and banks have realized that’s really hard to do while also investing in the checking tools,” said Adam Stockton, head of retail deposits and lending at research firm Curinos. “We haven’t seen a lot of those [high-yield checking] products stick around for a super long time.” 

When consumers consider different savings accounts, a high interest rate is among the top — if not the top — factor they’re considering, Stockton said. 

But when it comes to checking accounts, people are looking for online and mobile capabilities, money management tools, the ability to link to other payment transaction periods and low fees. 

Banks are usually not able to offer high interest on checking accounts in addition to all those bells and whistles, which is part of why high-yield checking accounts stay on the market for a year or two before a bank changes strategy, Stockton said.

When the Federal Reserve’s federal funds rate is increased, banks tend to follow suit. Because of that, we’re currently seeing high rates across bank products, including both savings and checking accounts. But it won’t last forever. 

There are typically fewer offers in a really low-rate environment, Stockton says.

What you need to know

When rates are high, consider opening a high-yield checking account and earning some interest on your cash. But before you do, be aware of the limitations around these checking accounts, like meeting certain requirements.

The Consumers Credit Union Rewards Checking, for example, has one of the highest interest rates around for checking accounts. You can earn 3.00% APY on balances up to $10,000, but it requires you to sign up for e-statements, make at least 12 debit card purchases and have at least $500 in direct deposit per month. If you also have a CCU Visa credit card and make $1,000 per month in purchases on it you can bump your APY to 5.00%. 

But not all accounts require as much effort.

Credit Union 1 High Yield Checking offers a similar deal; you’ll earn 5.25% APY on balances up to $10,000 (balances over $10,000 earn 0.01% APY). You won’t have to jump through hoops to earn the high yield, and the account itself charges no monthly fees. You can become a member with a $5 donation to its Educational Development Association.

While you can find high-yield savings accounts that offer similar top-notch yields on all balances, these checking options are a great service to young adults just starting out in their career, or parents who need to maintain a robust checking account in order to pay, say, daycare bills. 

Why you should use one

In addition to giving you more interest than a regular checking account, a high-yield checking account allows you to maximize your dollars. 

Patrick Lach, a certified financial planner and assistant professor of finance at Indiana University Southeast, recommends this type of checking account to his clients and explains the benefits by pointing out how the interest earned could help cover another cost. 

“If somebody goes to Florida once a year, I can say this extra interest is going to pay for your plane ticket,” Lach said. 

He points out that a checking account is something most people already have with a cash buffer that goes above their normal monthly expenses. 

“It makes no sense to just leave it there earning nothing,” he said

While a high-yield savings account may give you more interest, many of us want easy access to our money. If you’re dealing with money you use for regular spending, a high-yield checking account can help you make the most of that money. 

“If you could pick a high-yield checking account or something that isn’t going to give you any interest, I would definitely go with a high-yield checking account,” said Eric Roberge, a certified financial planner and founder of the financial planning firm Beyond Your Hammock. 

Knowing that you’re taking advantage of every opportunity to earn extra yield can also give you the confidence that you are in control of your financial future, which then lets you attack more difficult fare (such as finding a mortgage) with more vigor. 

In a complicated personal finance world, every edge helps.