Interest Bearing Checking Accounts
An interest bearing checking account sounds like the best of both worlds: have your funds accessible and earn interest at the same time. Of course, there are always trade-offs, and this is only a good idea in certain situations.
In general, you can earn more interest if you are willing to forgo access to your funds for a period of time and if there is a significant balance. Since funds in a checking account are accessible to you at any time, the interest rate is almost always lower than CDs and even savings accounts. Also, most banks require that you keep a significant minimum balance at all times to avoid a fee. If it’s likely that you will go below that balance, you should skip the interest bearing checking account and get a free checking account instead. One service fee could easily wipe out a year’s worth of interest. Some banks also have a maximum balance on which they will pay interest.
In many cases, if you have a large balance and you don’t need access to it frequently, you would be better off to move the funds to a savings account or a CD.
If, however, you typically maintain a large enough balance and you have many deposits and withdrawals, an interest bearing checking account may be the right solution for you. The only way to be sure is to do the math. Take your average balance and figure out what the interest would be. Look at any bank fees that you might incur and determine whether the interest exceeds this amount.
Many interest bearing checking accounts don’t really qualify as checking accounts according to the FDIC, so they’re not insured. Ask the bank what insurance, if any, is offered on the account.