Interest checking account

What is an interest checking account?

An interest checking account is a checking account that pays interest to the account holder. Most interest checking accounts allow unlimited check writing. If opened with a financial institution insured by the Federal Deposit Insurance Corp., or FDIC, interest checking accounts are insured up to $250,000.

Deeper definition

A checking account is a type of bank account that allows the account holder to make payments from it. Paper checks can be written and debit card transactions made against the account balance. An interest checking account works the same way, but also pays the account holder interest.

Interest checking accounts differ from one institution to the next in terms of what they offer and how much they cost. Some accounts charge a monthly or annual fee; others are free, but come with restrictions, such as limited debit transactions. Many interest checking accounts have a minimum balance requirement to be eligible for interest payments. The minimum-balance requirement assures the lender it can maintain investments on the funds in the account.

Interest checking account example

Matthew wants to open a checking account for paying bills and everyday expenses by using a debit card or writing paper checks. He also wants an account that pays interest, as he plans to maintain a large balance. He finds an interest checking account offered by a local bank that pays a 2.25 annual percentage yield, or APY. There are several restrictions, however. Matthew has a $7,000 balance cap for the 2.25 APY; anything in excess of $7,000 will earn only .05 APY. The account also requires Matthew to make at least one direct deposit per month, use automatic bill pay and get monthly e-statements instead of paper account statements each month.

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