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  • High-yield checking accounts that offer more than 2% APY are becoming more common.
  • However, many come with balance or deposit minimums, or require a customer use the bank's bill-pay service or have paychecks deposited directly in order to get the APY.
  • High-yield checking accounts can be a great way to earn more interest on your spending money, but read the fine print and research diligently to make sure the account you want fits your lifestyle.

Life is hard without a checking account. Without it, where would you deposit your paychecks? How would you pay your rent, your bills, your credit card balances? Your checking account is the nexus of your entire financial life. The convenience makes them easy sells, so banks don't feel the need to load them with any extra perks.

Until now.

Interest rates for checking accounts have been abysmal for decades, but recently, many banks are starting to offer high-yield checking account products — banking options that can actually net a substantial return to those who use them.

What is a high-yield checking account?

A high-yield checking account is exactly what it sounds like: It's a checking account that has an annual percentage yield (APY) that's much higher than those offered by standard checking accounts, which usually offer no interest at all. That means the APY is at least 2%, but the best of the best offer 3% to 4%. Sometimes, even more.

Note that a high-yield savings account is a different product. A high-yield savings account can pay 2% or more in interest, but is intended to be used to save money so it doesn't come with a debit card, you can't take the money out at ATMs, and you're allowed only a minimum number of withdrawals each month.

Being a special financial product, high-yield checking accounts can come with a lot of strings.

Some high-yield checking accounts may have requirements to qualify for the APY

"Banks that offer you a high percentage rate return on a checking account expect you to use it like a checking account, not a savings account," says Patricia Russell, a certified financial planner and founder of FinanceMarvel. "That means they require you to make a certain amount of transactions each month. In addition, they also require you to make a certain number of specific types of transactions."

Some of the types of transactions they might require," she continues, "are making a certain number of debit card purchases per month, making a certain amount of credit card purchases per month, using their bill pay service or make some type of recurring payment each month, setting up direct deposits, or signing up for e-statements."

It's standard to see deposit minimums when opening savings accounts, but with high-yield checking accounts, because of the greater operating costs for the institutions offering them, balance and deposit minimums are just as common. Not keeping the minimum balance in your high APY checking account could incur fees or lead to the loss of the high APY. Pay attention to the terms and conditions of your account.

Another common practice is for banks to offer a high APY for a checking account, but only up to a certain amount. You may be diligent about keeping $5,000 in your checking account at all times, but the bank may only be paying a high APY on the first $1,000, while the remaining amount draws interest at a standard — and much lower — rate

Does the account come with fees?

"[A] major benefit of high-yield checking accounts are that they often come with low to zero monthly fees," says Kimberly Hamilton, Founder of Beworth Finance LLC. "That said, you'll want to check for any other charges that may come up — for example, ATM fees. If one financial institution offers a higher interest rate, but tacks on fees, you may want to reconsider the lower interest rate option after all."

While more and more traditional brick and mortar banks are offering high-yield checking accounts, the majority of them can be found in online banks. Because they don't have any physical locations, there also aren't any in-network ATMs to visit when you need to make cash withdrawals. With ATM fees averaging $2 to $4, this kind of use could add up pretty quick. Carefully look at the terms and conditions of your checking account to see if it waives or refund ATM fees.

Some banks and credit unions may try to attract new customers by offering high APYs for a limited time, similar to the marketing tactics of 0% intro APR credit card offers. Pay attention to the fine print and don't assume that your high interest rate will last the entire time you hold an account.

Where is high-yield checking available?

Some of the checking accounts with the best APYs are only offered by small credit unions and banks that have a decidedly small reach in terms of geography. Before you open up an account with one of these banks, carefully consider where you might be in a few years. If there's any chance you might move across country, you'll be forced to change banks, and that's a major hassle. If you live a more nomadic life or tend to travel a lot, a major bank with national reach, or an online bank that operates across the US, might be your best bets.

However, this might not be a problem for long, even with the small, local banks and credit unions.

"Many banks have begun shifting their banking operations online as a means to reduce costs of maintaining a physical network of branches," explains Riley Adams, CPA and founder of the The Young & The Invested. "This change has resulted in lower efficiency ratios for banks (percentage of revenue represented by costs, lower is better for measuring bank profitability). In fact, online-only banks are best-suited to offer high-interest checking accounts because they face lower costs and must offer higher interest rates to attract customers to use their services."

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