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What Is an Interest Checking Account?
When it comes to managing your finances, combining the benefits of savings and checking in one bank account can be a smart move. This is where interest-bearing checking accounts, also called interest checking accounts, come in. This type of checking account enables you to earn interest on the balance you maintain, like a savings account.
Interest checking accounts allow you to access your money for day-to-day spending while also earning extra income in the form of interest. You can meet short-term needs while saving for long-term financial goals. Interest checking accounts may offer attractive features like higher interest rates and fewer fees.
How do interest checking accounts work?
The concept behind interest-bearing checking accounts is that you deposit money into the account, and the bank pays you interest based on your balance. The interest rate you earn is determined by the bank, and the higher your balance, the more you stand to earn over time.
Aside from that, the account works like a typical checking account. You can write checks, take advantage of online banking tools, use a debit card to make purchases and obtain cash, and have your paycheck deposited into the account, as well as make unscheduled deposits.
These accounts provide interest gains like a savings account, plus the accessibility of a checking account. Unlike with certificates of deposit (CDs) and some other investments, you can access funds when you like in a variety of ways, giving you both flexibility and the chance to grow your money.
Terms to know about interest checking accounts
Before opening an interest checking account, it’s important to understand the following terms:
- Interest rate. This is the rate of return the bank pays as interest on your account balance. A higher interest rate means more money earned.
- Annual percentage yield (APY). The annual percentage yield reflects the total interest earned over a year. It differs from the interest rate because it includes compound interest. The APY offers a way to compare different accounts.
- Minimum balance. Some interest-bearing checking accounts require customers to keep a certain amount in the account in order to earn interest and/or avoid fees.
- Monthly fee. Some banks charge monthly account maintenance fees, but the fees can sometimes be waived if certain conditions are met, such as setting up direct deposits or maintaining a minimum balance.
What are the benefits of interest-bearing checking accounts?
An interest-bearing checking account may offer several advantages that make it a helpful tool for managing your finances. Here some of the potential benefits:
- Earn extra money on your balance. Unlike standard checking accounts that don’t pay interest, an interest-bearing checking account provides a steady way to earn extra income on money that remains accessible for everyday spending.
- More flexibility than other interest-bearing accounts. An important feature of interest checking accounts is their flexibility. CDs lock your money away for a fixed term and high-yield savings accounts may have withdrawal restrictions, but interest-bearing checking accounts allow access to your funds.
- More perks. If you keep a larger balance in the account, banks may provide additional benefits. These may include benefits like free standard check orders, money orders, official bank checks, and stop payments.
What to look for in an interest-bearing checking account
There are a few things to think about before opening an interest checking account. These factors will help you see if an account would align with your spending habits and financial planning goals.
- Competitive rates. Some banks offer more attractive interest rates than others. Look for the best combination of low fees, higher APY, and convenient services. Banks may also offer promotional rates for new accounts and relationship rates, so be sure to ask about those.
- Interest caps. Some interest-bearing checking accounts place caps on how much interest you can earn. For example, you might receive the highest APY on balances up to a certain amount, while any amount above that earns a lower rate.
- Balance requirements. Interest-bearing checking accounts often have minimum balance requirements. If your balance falls below the threshold, you won't earn any interest and might be charged a monthly fee.
Carefully considering these factors will help you choose the right type of checking account for your needs—one that may help you meet your financial goals while minimizing costs.
Checking accounts from TD Bank
TD Bank offers a range of checking products to help meet your financial goals, whether you're looking for convenience, competitive interest rates, or tools for budgeting and financial planning.
An account loaded with perks, including interest
A checking account made for everyone
No checks and no overdraft fees or services
TD Business Simple CheckingSM
An ideal account with no minimum balance requirement
TD Business Convenience Checking Plus
The essential account features you need to run your business
TD Business Premier CheckingSM
Rewards for your business deposits, TD Bank relationship and more