Essentially there are two kinds of checking accounts which pay interest. One might be thought of as the “plain-vanilla” version. And the other the rewards type. No matter which you choose, you will have to comparison shop. That is because there are a growing number of options.
You are searching for the account with the highest rate of interest which also provides the features you need and the restrictions you can live with. Yes, you have to read the fine print about the terms and conditions. There is no longer a “standard” checking account. Financial institutions, be they banks or credit unions, establish their own specific rules for their accounts. In addition, you must make sure that your funds are insured by the FDIC. Also, you have to remember that you are operating in a low-interest environment. Therefore, no matter how high the rate of interest offered, it is likely to be lower than what you might have been used to before the economic downturn. Until the federal government assesses the recovery as having momentum, interest rates will likely be kept low.
The plain-vanilla interest bearing checking account could be housed in brick and mortar branches or solely online. Those in brick and mortar are likely to have the most restrictions. That is because maintaining accounts there is more expensive. You need to find out if there is a monthly limit on the number of any kinds of transactions, such as transfers; what are the policies about overdrafts, that is, bounced checks; and must you keep a minimum balance. You may be able to manage some of these by also having a savings account which is linked to checking. For example, you can inform the bank to have savings provide funds for overdrafts and have the bank calculate a minimum balance as the aggregate average of the two accounts.
Online accounts tend to have fewer restrictions and more options. The challenge is that there is so much variety. The good news is that Internet sites provide feature-by-feature comparisons. Simply type in keywords such as “online checking with interest.” However, rates change often and the site might not be up-to-date. But you will get a ballpark idea about what particular financial institutions are offering. The next step is to navigate to their websites, call, or email them for current data.
Then there is the rewards interest-bearing checking account. Often those are lumped in with those labeled as “high yield.” They provide you with interest rates which may be comparable or even higher than that provided in savings accounts and certificates of deposit. In exchange, you have to agree to comply with any number and kinds of terms and conditions. Those could include transacting at least a minimum number of debit card payments monthly; locking into direct deposit, that is automatic payments; and only receiving balance statements online. Sometimes a relatively high rate is provided as an introductory one, then it returns to a significantly lower one. That you have to beware of.
Rewards checking accounts compete with rewards credit cards accounts. The amount of interest you receive as a tradeoff for using your debit card could be less than the monetary value of the rewards you derive from using certain credit cards. Often that could be the case with teaser intro rates.
When interest rates rise, it will be useful to review the interest checking account packages available and weigh them against two things. One is your current checking account. The other is the reward programs you are receiving from your credit card accounts.