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Definition of High Yield Checking
by Ben Bontekoe
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Overview
High yield checking accounts, as the name implies, pay a high rate of interest relative to other accounts. They are designed to give you easy access to your money, while still paying interest rates more commonly associated with CDs. Although they generally have several restrictions, you may find high yield checking to be an attractive alternative to traditional checking and savings accounts.
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The Facts
Checking accounts in the past typically paid no interest, or if they did, it was minimal, and generally required you to keep high minimum balances or pay monthly fees, which often exceeded the interest earned. In recent years, however, more and more banks and credit unions have begun offering high yield checking accounts, often called Reward Checking or a similar name, which offer the convenience and flexibility of checking accounts with interest rates that are often higher than CDs.
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Function
You can often open high yield checking accounts with very little money, and many have low minimum balance requirements, or none at all. However, you will usually have to fulfill several conditions to earn the best rate or avoid paying fees. Balance levels are often tiered, and the interest rate depends on how much you keep in the account. For instance, a bank could pay 4 percent on balances up to $50,000, but 0.5 percent on anything above that (check with your bank for actual interest rates and balance amounts).
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Features
High yield checking accounts will require you to do certain things every month to receive the best interest rates. Requirements vary among banks, but some of the more common are that you must receive your monthly statement electronically (not by mail), you must use your debit card a minimum number of times (often 10 to 20 times) each month, and you must make at least one electronic transaction, such as receive a direct deposit or make an online bill payment, per month.
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Benefits
Apart from the obvious benefit of the interest rate, some bank customers are drawn to high yield checking accounts for the convenience they offer. Since they pay a higher rate than most savings accounts or even CDs, it makes to keep more money in your checking account, rather than in multiple accounts. Also, if you already make several debit card purchases each month and are familiar with online banking, you won't have to change the way you currently bank very much in order to meet the requirements.
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Considerations
Interest rates can fluctuate on high yield checking accounts. Although they will almost always be better than CD rates, they can go down as well as up. If you prefer the peace of mind a fixed rate offers, you may feel better keeping your money in a CD. Also, most high yield checking accounts are set up to encourage you to do most of your banking online. If you're not comfortable doing this, or prefer to pay for purchases by cash or check, not debit card, you may find it hard to meet all of the conditions of the account.
