Checking accounts are the most basic and foundational of all financial accounts. Consumers use them on a daily basis to handle transactions and direct deposits. A majority of people manage their income paychecks using their checking account. Often, a debit card is connected to one’s checking account for purchases and ATM use.
If you’re curious as to what the average checking account interest rate is, we admire the tenacity in always searching out new ways to save more money. Because of the fluctuating nature of checking accounts – account balances going up and down with transactions, deposits, and withdrawals – there are not many that earn interest.
Traditional banks most often annual percentage yield interest rates on your average savings account rather than checking accounts. Savings accounts feature higher interest rates to help you build wealth but hold many more restrictions when it comes to withdrawals and transactions than a checking account would.
That being said, there are interest checking accounts that exist that offer slightly less flexibility than a typical checking account. However, they are not as restrictive as savings accounts, meaning you get to enjoy a little more freedom while still being able to earn interest on your checking account balances.
Checking Accounts vs. Savings Accounts
Checking accounts and savings accounts are a bit like apples and oranges in terms of their purpose for your financial health (although we do suggest both to keep the doctor away). A savings account is designed for the long-term cash placement that you build upon over time. This can be for the purpose of saving up for a large purchase, a stash of money for emergencies, or investment for the future.
Checking accounts, on the other hand, are designed for the ease of moving money around, whether that be through withdrawals, deposits, transactions with your debit card, or checkbook. A checking account is meant to give you regular access to your cash rather than a place to hold it for growth.
Are There Interest-Bearing Checking Accounts?
Interest checking accounts are not the most common of personal finance topics as they are more rare than the traditional savings account. But this does not mean that they could not be an excellent addition to your financial portfolio.
An interest checking account allows you to earn interest on your balance without needing to abide by the same restrictions put on savings accounts. However, there are usually some special requirements that you must agree to for the benefits of these high-yield checking accounts.
Interest checking accounts may need you to meet minimum balance requirements and/or pay a monthly maintenance fee in exchange for the annual percentage yield. Money market accounts have an interest rate and may come with a debit card and checks, but they still have withdrawal restrictions.
These checking accounts with interest rates will not put limits on your withdrawals or transactions, unlike savings accounts.
Average Checking Account Interest Rate
The average interest rates on interest-bearing checking accounts are typically less substantial than those for savings accounts and other high-yield investment accounts. The average interest rate on a checking account won’t earn you more than the average savings account rate because the balance is constantly fluctuating.
Major traditional banks will likely offer around a 0.01% APY interest rate on an interest checking account. The national average interest rate is slightly higher at 0.03% because many online banks offer higher annual percentage yields. Additionally, smaller regional banks and credit unions tend to provide more generous interest rates and policies, increasing the overall national average interest rate.
Your options may be limited when it comes to checking accounts with high-interest rate yields because it can be far easier to earn more interest with savings accounts. The average daily balance falls with general consistency on a checking account, whereas the balance generally increases on the average savings account, meaning there is significantly more interest earned.
Should I Open an Interest Checking Account?
Whether you should open an interest checking account depends entirely on your personal finance goals and priorities. If you want regular access to the cash you keep in the account and usually keep high checking account balances, you might be able to benefit from the little bit of money you can earn in interest. Online checking accounts with an online bank might be able to offer you a higher interest rate to make up for the monthly maintenance fees.
However, if you are looking to save money for long-term goals and get serious growth on increasing balances, then it might be a better option to shop around for a savings account with a higher interest rate. The average savings account interest rate is around 0.06% APY which is double than the average interest checking rate. The average interest rates on a savings account will be significantly better for long-term savings.
Highest Interest Yielding Financial Accounts
There are tons of options out there for high-interest accounts that you can use for saving and investing. Even if you open a checking account with an interest rate, we still recommend you have additional interest-bearing accounts to prepare yourself financially for the future.
A good variety of deposit accounts and savings accounts could make all the difference in your financial health. You might be surprised by how much money you can earn through interest on an online savings account or a money market account.
Let’s take a look at a few popular financial accounts that offer an impressive average interest rate:
High-yield Savings Accounts
Traditional savings accounts allow quick access to funds through transfers to your checking account with limited withdrawals. The account interest is higher, allowing you to earn more as you add more to the balance. Many online savings accounts from popular online banks offer incredibly competitive rates compared to brick and mortar banks.
We advise you to do some rate shopping on various online savings accounts from different online banks before settling on one because a bit of research can go a long way. An online savings account will get you far higher average interest rates. Working with an internet bank could get you an average savings account interest rate closer to 0.50% APY.
Money Market Accounts
Money market accounts are likely the most similar in function to interest checking accounts since some of them come with a debit card and a checkbook. However, a money market account has similar withdrawal limits to a savings account, so your use of the account for purchases will still be limited.
That being said, the average interest rate for a money market account will be a good deal higher than checking account interest rates. For this higher annual percentage yield, money market accounts usually require a minimum balance of at least $1,000 to avoid monthly maintenance fees. The average interest rates for money market accounts hover somewhere between 0.08% and 0.11%.
Certificates of Deposit (CDs)
Certificate of deposit accounts, otherwise known as CDs, typically pay interest at the highest rates out of all savings account types. It usually requires $1,000 to open certificates of deposit accounts, although there are some CDs with no minimum balance to start.
Certificate of deposit accounts, while offering significantly higher average interest rates, do not allow regular account access like savings and money market accounts. When you open a CD, you agree to not withdraw any money from the account for a set period of time ranging from six months to five years. The longer the term of the CD, the higher interest rates you’ll be able to find.
Tips for Saving More Money With Interest Bank Accounts
One of the best ways to prepare for the future is to begin building up your savings. Most personal finance experts will advise you to have a portfolio of accounts for variety and differing purposes. A checking account for regular use, savings, and money market accounts for ease of access, and a CD account or two for building wealth. Having a financial portfolio this well-rounded will prepare you for serious investment later in life.
Here are a couple of tips that may help you save even more money in your high-yield accounts:
Shop Around for the Best Interest Rates
Do your research before settling on an account. There is an abundance of financial institutions to choose from, all of which offer different interest rates and policies. Picking the first savings or money market account, you find likely won’t be the best deal available.
Online banks tend to offer higher interest rates compared to brick and mortar banks. The only way you can be sure you are getting the most bang for your buck is by rate shopping.
Pay Off Your Debts
To increase the amount of money you can put away for the future, prioritize paying off your debts. High-interest debts like personal loans, online payday loans, and credit cards are only sapping your resources. You are paying high-interest rates rather than earning them.
By paying off your debt, you will be able to reallocate that money you spent on monthly payments towards your savings accounts to earn interest rather than be charged interest.
Don’t Move Around Your Money Too Much
Once you get a big chunk of cash into one of your interest-bearing accounts, do your best to leave it be even if you are allowed access. Moving money in between your savings account and your checking account can be tempting. Or to use the debit card that came with your money market account. But a constantly fluctuating account balance will minimize the accrual of interest.
Keep adding money to your account and avoid withdrawals. Simply allow the balance to grow steadily. Doing this instead of consistently moving money around between accounts will help your savings grow significantly faster, leaving you with a solid safety net as the years go by.
References:
Average Bank Interest Rates: Checking, Savings and Money Market Rates – ValuePenguin
The average bank interest rates for savings accounts, CDs, money market accounts, and loans
Average Checking Account Interest Rates 2022 – Elite Personal Finance
