How Does a High-Yield Checking Account Work?
We’re sure that you know better than to keep money under your mattress—especially when you can just use a checking account.
But, truth be told, checking accounts are essentially the modern-day equivalent of the mattress strategy: The cash sits in the account until you withdraw it—and, unlike a savings account, it may not earn interest.
But a high-yield checking account does earn a type of interest known as an annual percentage yield (APY), which is often calculated using interest that compounds more than once a year—which can grow faster than an APR. Many banks offer high-yield checking accounts to entice new customers to do business with them—the thought is that once you open a checking account, the bank can then persuade you to open a savings account or apply for a credit card, loan, mortgage or line of credit down the road.
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Some high-yield checking accounts even offer interest rates that are competitive with high-yield savings accounts, typically averaging between .20% and 3.25%. However, high-yield checking often comes with caveats. For one, you may need to maintain a minimum balance, as well as use your debit card a certain number of times each month. Another possible catch: You may need to forgo paper statements in favor of electronic ones. And, sometimes, banks even attach fees to high-yield accounts.
For these reasons, high-yield checking may not be the best option for most people. But could it be right for you?