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What to consider when opening a checking account
When shopping around for a checking account, you may not be focused on getting the best interest rate. But it doesn’t have to be that way. There are plenty of high-yielding checking accounts that offer the same sorts of features that you’ve come to appreciate.
Nowadays, many financial institutions offer high-interest checking accounts, including a variety of online banks and credit unions. Choosing an interest-earning checking account is an easy way to boost your savings with little to no extra effort. Online banks tend to require low or even zero minimum deposits, which eliminates a common barrier for some people.
In addition to the accounts listed above, check out our list of the best reward checking accounts, which offer significantly higher rates but also carry minimum usage requirements. Some may also require you to jump through a few hoops to snag the better interest rate, like making a certain number of transactions per month or opting out of paper bank statements.
When looking at checking accounts, watch out for fees. Checking accounts are more likely to come with fees than savings accounts. These can include monthly service fees, overdraft fees, overdraft protection fees, the cost of checks and more. Pay particular attention to avoiding accounts that have charge monthly service fees — if you can’t waive it, the monthly fee erodes your savings.
Ken’s methodology for choosing the top checking accounts
As I was deciding on my top five checking accounts, I became disappointed in the rates from the standard checking accounts. The few internet banks that do offer checking accounts have not been raising their checking account rates as interest rates have been rising in the last couple of years. These include Ally Bank, FNBO Direct, Bank5 Connect, and Alliant Credit Union. Thus, I decided to focus on high-yield reward checking accounts that are nationally available.
High-yield reward checking accounts offer a high interest rate on balances up to some cap if certain monthly activity requirements are met. The primary activity requirement is debit card usage. To qualify for the high yield, between 10 to 20 debit card purchases are typically required. If the monthly activity requirements are not met, only a low base rate is earned for the month.
Most reward checking accounts, and all Kasasa Cash accounts, are free checking accounts that have no monthly service fee even if the monthly activity requirements are not met. In my top checking account picks, I decided to not only focus on interest rates, but also monthly service fees. I excluded any checking accounts that have monthly service fees.
Not only is a high interest rate important, but the high rate should not be limited to only a small balance. All reward checking accounts have balance caps. Only balances under the cap are eligible for the high yield. The portion of the balance over the cap earns a much smaller yield. Reward checking caps range in size from $5k to $50k. I decided to require a cap to be at least $25k.
#1 Heritage Bank
We’ve been tracking Heritage Bank’s reward checking account, now called the eCentive Account, since 2009. The rates and balance caps have changed quite a bit since that time. A large rate hike occurred in April 2018 when the rate increased to 3.03% APY on balances up to $25k. The eCentive Account continues to offer one of the best reward checking rates for balances up to $25k.
To qualify for the top rate each month, the customer must make at least 10 debit card purchases, have at least one direct deposit or automatic payment (ACH) and receive monthly eStatements. Meeting these requirements also entitles the customer to receive automatic refunds up to $25 per month for domestic ATM fees charged by other ATM owners. There is no monthly service charge.
#2 Main Street Bank
Michigan-based Main Street Bank has been offering its Kasasa Cash reward checking account since 2015. In 2019, the rate increased to 3.00% APY on balances up to $30k.
To qualify for the top rate each month, the customer must make at least 10 debit card purchases, log into online banking, and have at least one direct deposit, one ACH, or one bill pay transaction. In addition, the customer must receive eStatements. Meeting these requirements also entitles the customer to receive unlimited reimbursements (up to $4 per single transaction) for domestic ATM fees charged by other ATM owners. As with all Kasasa accounts, there is no monthly service charge.
#3 Georgia Banking Company
Georgia Banking Company launched its Kasasa Cash reward checking account in April 2017. In October 2018, the rate increased to 2.95% APY on balances up to $25k, but it decreased its rate to 2.00% in October 2019.
The Kasasa Cash Account has only two monthly qualifications to earn the top rate. The first is making 12 debit card purchases, and the second is receiving eStatements. Meeting these qualifications will also entitle the customer to receive unlimited refunds on ATM withdrawal fees, nationwide. As with all Kasasa accounts, there is no monthly service charge.
#4 Bellco Credit Union
MBellco Credit Union’s reward checking account is called Boost Interest Checking, and it was launched in 2015 offering a 2.25% APY on balances up to $25k.
To qualify for the top rate each month, the account requires 15 debit card purchases, at least one direct deposit transaction, and logging into online or mobile banking. There is no monthly service fee. The credit union does not offer refunds on ATM withdrawal fees. However, members have access to over 33,000 surcharge free ATMs nationwide through the CO-OP and MoneyPass networks.
MemoryBank EarnMore Checking Account is the only standard checking account on my list. Unlike reward checking accounts, a standard checking account has no monthly activity requirements to qualify for a high yield. The EarnMore Checking Account actually started out as a reward checking account when MemoryBank began in late 2016. However, in early 2018, the requirements were eliminated. With the current EarnMore Checking Account, customers can earn 0.90% APY for balances up to $250k without having to complete any requirements.
The EarnMore Checking Account has no monthly maintenance fees. MemoryBank does not offer refunds on ATM withdrawal fees, but customers have access to 92,000 surcharge-free ATMs nationwide through major ATM networks.
Checking Accounts Rate History – Average APY (%) Rate Trend over Time
Checking account features
Checking account features vary greatly, depending on the issuing institution. Credit unions and banks offer accounts with features like online banking, personal checks, debit and ATM cards, free ATM withdrawals, bill pay, mobile deposit, free ACH transfers and direct deposit. Some accounts may go above and beyond the features listed above, while others provide only the bare minimum.
It’s also important to note that while an account may offer a wide variety of features, they may be priced à la carte, and carry extra fees. Sometimes you need to request a certain feature to take advantage of it. The account may include lots of great features while also charging a monthly fee.
Benefits of a checking account
The main benefit of a checking account is the ease with which it lets you make purchases and manage your day-to-day expenses. With debit cards, you can make purchases with a quick swipe or tap, and mobile apps let you see all of your transactions in one place. Checking accounts lack the transaction limits placed on savings and money market accounts by Federal Reserve Regulation D which mandates certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle, so you don’t have to worry about making more than six withdrawals or paying an excessive transaction fee.
Checking accounts also provide a lot more safety for your money than keeping wads of cash under your mattress. If cash is stolen, there’s little chance of getting it back. When you put your money in a bank account, there are layers of protection that prevent you from losing a dime. Encryption and digital security systems keep your account information secure, and the Federal Deposit Insurance Corporation (FDIC) protects your money in case of a bank failure up to the legal limit.
Open an interest-earning checking account, and your money can grow just like it does in a savings account. That lets your money work for you, no matter where it’s kept, and that helps maximize your earnings.
Best ways to use a checking account
The best way to use a checking account is to make sure you’re earning interest. This ensures that your money isn’t only growing in your savings account, but also in your checking account.
Savings accounts generally earn higher interest rates than checking accounts, so keep most of your money in a savings account. Stash just enough money in your checking account as you need to cover your regular weekly cadence of spending. Transfer money into checking as needed throughout the month, and your money can grow even more efficiently.
Checking account best practices also demand you should avoid paying monthly maintenance fees. Typically, you can avoid a monthly fee by holding a certain balance in your checking account, setting up direct deposit or by making a set number transactions. If there is a monthly fee, ensure you understand the requirements necessary to waive the fee. You shouldn’t be paying extra to keep your money safe and accessible. If you can’t meet the requirements, there’s no need to worry. There are plenty of free checking accounts available, or accounts with lower balance thresholds.
Fees to watch out for with checking accounts
Read the fine print before opening any account, and always check for a monthly fee. Paying a monthly fee unnecessarily cuts into your savings, especially if you can’t meet the minimum balance to waive it. You may also want to check if there are any caveats, like a monthly fee for paper statements or inactivity fees. Those are easy enough to avoid, but you’ll want to be aware of them before they pop up on your statement.
Overdraft fees are also something to watch out for, as financial institutions are required to ask you if you’d like to opt in to overdraft coverage. Overdraft fees typically run around $35. This type of fee is triggered if you attempt to withdraw money from your account when there isn’t enough to cover the debit. Overdraft coverage means your bank covers the extra amount — and you pay a fee for the pleasure. You may also be charged nonsufficient funds fees (NSF) if you overdraw your checking account.
Since you’ll be using a debit card to make ATM withdrawals from your checking account, be sure you understand your bank’s policy for ATM use. Most big banks restrict free ATM withdrawals to their own ATMs. This can be limiting, compared to online banks who tend to offer free access to tens of thousands of ATMs all over the country, via partner networks. Credit unions also tend to offer better ATM access. Using an out-of-network ATM typically costs an extra fee, often around $2.50 per withdrawal. Some institutions waive out-of-network ATM fees, up to a point. Big banks usually reserve this feature for their more premium accounts.
How your money is protected in most checking accounts
Banking with a reputable institution will ensure that your money is protected by technological security measures like encryption and firewalls. Many institutions also administer anti-virus and fraud protection for online account access, and include other front-end protections like two-step authentication or fingerprint ID on mobile devices.
Checking accounts at banks are insured by the Federal Deposit Insurance Corporation (FDIC). This protects up to the legal limit per depositor, per institution in the event of a bank failure. If your bank were to go under, the FDIC would either open a new account for you in your name at another institution, or send you a check for the account balance at the failed bank.
Checking accounts at federally-chartered credit unions are insured by the National Credit Union Administration (NCUA). Accounts are insured up to the legal limit per depositor, per institution. State-chartered credit unions may elect to have NCUA insurance, but they’re also regulated by the state supervisory authority where the credit union's main office is located.
Should you choose a traditional bank, an online bank, or a credit union?
The answer to this question depends on your preferences. If you’re looking for a high-yield checking account, it’s probably better to go with an online bank or a credit union. Online banks run by fintech developers consistently dominate the interest-earning checking account space. They typically lack fees, too. Big brick-and-mortar banks just can’t compete with their low rates and fee-heavy accounts.
Of course if you want or need branch access, an online bank won’t cut it. You’ll want to turn to a brick-and-mortar bank or credit union for branch access. If you’d prefer a credit union, check to see whether they’re a part of the CO-OP Network. This will give you access to shared branches around the country and a huge nationwide ATM network. Just remember, banking with a traditional bank or credit union often carries more fees and lower deposit rates.
In terms of safety, all institutions provide the necessary protections as long as they’re reputable and insured. If you’re unsure of an institutions protections, you can always check their website for the exact security measures they employ. Banks should have FDIC insurance and federal (and some state) credit unions will have NCUA insurance. Since fintech companies are usually not banks, they partner with banks who hold your deposits and provide FDIC insurance.
Differences between a checking account and a savings account
Checking accounts are transactional accounts in that they allow for unlimited transfers and payments. Savings accounts are limited by Federal Reserve Regulation D which mandates certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle. It does not include withdrawals made at branches or ATMs. This is why checking accounts are used for everyday purchases, and savings accounts generally lack debit cards or ATM cards.
Due to their limitations, savings accounts are better for letting your money sit and earn, instead of being used for day-to-day transactions. Banks want you to leave money on deposit with them in a savings account so they can lend funds out to other customers. This is why they offer higher interest rates on savings accounts than on checking accounts.
Differences between a checking account and a money market account
Checking accounts have more in common with money market accounts (MMAs) than they do with savings accounts. Under regulation D, MMAs are a form of savings account. However, many institutions issue debit cards or ATM cards to MMA holders, and sometimes even grant check-writing capabilities. Savings accounts lack these features, making MMAs a kind of checking-savings account hybrid. This gives MMA holders more options for accessing their funds. However, Reg D still limits MMAs to certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle.
Money market accounts tend to have higher rates than checking, and even sometimes savings, accounts, making them a better option for growing your money. Higher rates paired with easier access makes money market accounts great for emergency funds or occasional purchases.
Differences between a checking account and a cash management account
If you’re unfamiliar with them, cash management accounts are online accounts offered by fintech companies or investment firms that combine the features of both savings and checking accounts. They’re called “cash management” accounts because of FDIC and Securities and Exchange Commission (SEC) regulations that limit fintechs from officially naming them checking accounts.
Some cash management accounts earn yields typically only seen with high-yield savings accounts, while also offering the cash withdrawal flexibility of a checking account. Cash management accounts aren’t limited to certain types of telephone and electronic withdrawals, including transfers from savings accounts like most savings accounts are. They can offer the best of both worlds, and rarely charge a monthly service fee. Note that the features offered with cash management accounts vary widely from company to company, making it even more important for you to research these accounts.
You might be hesitant to open a cash management account since they’re offered by newer companies who may not yet have the name recognition of a bigger bank. But as long as you vet them for security and insurance, you don’t have to worry about a cash management account being less secure than a checking account. Cash management fintechs and brokerages partner with FDIC-insured banks to hold your accounts.
History of the checking account
The history of checking accounts can be traced all the way back to the Roman Empire, when private bankers began holding public deposits in their depositories. This arrangement added leverage to the lending system, and bankers paid depositors interest on the funds they held. Because of the Romans’ preference for cash transactions, and a ban on the controversial practice of charging interest, the banking system didn’t develop into its modern form until the Medieval and Renaissance periods.
You might think that earning interest on a checking account is a novel idea, led by online banks. But the rise of interest-earning checking accounts dates back to 1998, when the average interest rate on checking account in the United States reached 1.35%. That average only fell from there, however, dropping to 1.04% the following year and tanking to reach near-zero rates in the early 2010s. On average, checking account rates started to recover somewhat in 2017, but the real rewards are found in the best accounts we list here.