What Is a High-Yield Checking Account and Why You Need One


If you’re exploring better ways to grow your money with easy access, you might be wondering, “what is a high yield checking account?” Unlike regular accounts, these high yield checking accounts offer higher interest rates, increasing your balance over time.

But there’s a catch; to reap the rewards of higher APY, requirements such as minimum transactions or balance thresholds must be met. Our article demystifies what is a high yield checking account, explaining how they work, the benefits they offer, and the key considerations when managing one.

Key Takeaways

  • High-yield checking accounts offer higher interest rates (APYs of 3% or more) compared to average checking accounts, yet require meeting specific criteria such as minimum transactions or deposits to earn these rates.
  • Benefits of high-yield checking accounts include the potential to earn passive income, easy access to funds with lower or no fees, and convenience for day-to-day transactions, while often providing perks like ATM reimbursements and online banking options.
  • Potential drawbacks include stringent requirements to receive the high APY, limitations on the amount that can earn high interest, increased risks associated with more frequent digital transactions, and often, tax implications on earned interest.

Understanding High-Yield Checking Accounts

In essence, a high-yield checking account is a checking account that works harder for your money. It functions like a regular checking account, but with one key difference: it earns higher-than-average interest.

Not only do high-yield checking accounts offer a higher annual percentage yield (APY), but they also come with specific monthly eligibility requirements that account holders must meet. Some benefits of high-yield checking accounts include:

  • Higher interest rates
  • No monthly maintenance fees
  • ATM fee reimbursements
  • Online and mobile banking options
  • FDIC insurance coverage

Consider opening a high-yield checking account to make your money work harder for you.

To qualify for these higher interest rates, account holders must often meet certain criteria, such as a minimum number of debit card transactions or maintaining a particular balance. This makes high-yield checking accounts a compelling option for individuals who maintain higher average balances and can adhere to the eligibility requirements. In short, high-yield checking accounts offer an opportunity to earn more, provided you can meet their specific requirements.

What makes them different?

The high interest rates offered by high-yield checking accounts truly set them apart. While the average APY of standard interest checking accounts hovers around a mere 0.07%, high-yield checking accounts often provide APYs of 3% or more. This substantial difference in APY can mean a significant increase in earnings over time.

However, these higher rates come with specific requirements that set high-yield checking accounts apart from traditional ones. These requirements often include a minimum number of debit card transactions or direct deposit thresholds. Meeting these requirements is essential to earn the higher interest rates offered by these accounts.

How do banks offer higher interest rates?

You might be wondering how banks can offer such high interest rates. The secret lies in the specific requirements they set for account holders. Banks offer higher interest rates for high-yield checking accounts if customers meet a set of predefined requirements during a statement cycle.

Online banks or credit unions are often the financial institutions that provide the best APY for checking accounts. For instance, SoFi checking account holders can earn an impressive 4.60% APY with qualifying deposits. However, without these deposits, the APY drops to 0.50% on checking balances.

woman using debit card

Benefits of High-Yield Checking Accounts

Now that we’ve explored what high-yield checking accounts are and how they work, let’s dive into their benefits. These accounts offer the opportunity to earn passive income, easy access to funds, and typically come with lower fees, making them an attractive option for those who maintain higher balances.

High-yield checking accounts offer the following benefits:

  • Enable account holders to earn passive income from their deposits
  • Your money works harder for you, providing a return without you having to lift a finger
  • Offer convenient day-to-day transaction methods such as debit cards, checks, and ATMs.

Alongside these benefits, high-yield checking accounts often come with:

  • Lower fees
  • Additional perks such as cash back on debit purchases, ATM fee refunds, and sometimes even free checking
  • Deposits in high-yield checking accounts are federally insured up to a standard amount, providing a layer of security to your funds

These features help to increase the attractiveness of these accounts.

Earning Passive Income

One of the most compelling benefits of high-yield checking accounts is the ability to earn passive income. These accounts accumulate interest on account balances, offering a means to earn passive income. So, without any additional effort, your balance will grow over time.

This benefit is especially significant for individuals who maintain higher balances. For example, Presidential Bank’s Advantage Checking offers one of the highest rates for balances over $25,000. However, it’s important to note that the annual percentage yield (APY) offered by high-yield checking accounts can change in response to fluctuations in the federal funds rate, impacting the overall earnings potential.

Finally, while earning interest on a high-yield checking account is beneficial, remember that these earnings may be subject to taxation. Therefore, it’s essential to consider this when calculating the overall financial impact of opening such an account.

Easy Access to Funds

Aside from earning higher interest, high-yield checking accounts also offer easy access to your funds. These accounts allow for deposits and withdrawals, providing immediate access to funds for everyday transactions and expenses. This level of liquidity makes them a convenient tool for managing your daily finances.

Compared to CDs and savings accounts, high-yield checking accounts offer more liquidity, enabling anytime access to funds without incurring penalties or fees. This flexibility can be particularly useful for those with fluctuating income or unexpected expenses.

These accounts enable flexible financial operations such as deposit and withdrawal of funds, bill payments, and money transfers without restrictions. However, it’s important to remember that maintaining the account and performing monthly activities are essential to benefit from the high-interest rates offered by high-yield checking accounts.

Lower Fees

In addition to offering higher interest rates and easy access to funds, high-yield checking accounts often come with lower fees. These accounts frequently offer no minimum balance requirements and waive fees such as monthly service charges and overdraft fees, setting them apart from traditional checking accounts.

Specific high-yield checking accounts, such as those from SoFi and Quontic Bank, operate without monthly fees, overdraft fees, or out-of-network ATM fees to attract and benefit customers. This can make a significant difference in the overall cost of maintaining the account.

Alongside fee waivers, some high-yield checking accounts offer the added benefit of ATM fee reimbursements and access to an extensive network of ATMs, further diminishing overall expenses for account holders. These additional features contribute to the allure of high-yield checking accounts.

Potential Drawbacks of High-Yield Checking Accounts

While the benefits of high-yield checking accounts are numerous, it’s also important to consider their potential drawbacks. These include the need to meet minimum activity requirements, such as debit card usage or direct deposit thresholds, to earn the highest APY. Failure to meet these requirements can drastically reduce the APY earned on high-yield checking accounts.

Some high-yield checking accounts have stringent criteria to qualify for the top-tier APY, making it challenging for account holders to consistently reap these benefits. In addition to the challenge of meeting specific requirements, high-yield checking accounts can also present an increased risk of exposing sensitive financial information online, due to the requirements of frequent digital transactions.

Meeting Specific Requirements

To earn the maximum advertised APY on a high-yield checking account, you typically must meet certain criteria. These often include having a regular direct deposit, conducting a minimum number of debit transactions, and enrolling for electronic statements.

These requirements, including the minimum balance requirement, can vary between institutions, such as a bank or credit union. For example, Lake Michigan Credit Union’s Max Checking requires at least one direct deposit and a minimum number of debit card transactions each month. In contrast, Consumers Credit Union Rewards Checking requires 12 debit card purchases and a minimum deposit amount.

Failure to meet these monthly APY criteria can result in earning a lower interest rate or no interest at all for that statement cycle. Additional account requirements to maximize APY may extend to:

  • other financial obligations and services offered by the institution, such as linked investment or trading account balances
  • making loan payments from the checking account
  • opening mandatory savings accounts along with the checking account.

Account Limitations

Another potential drawback of high-yield checking accounts is the presence of account limitations. For example, the Signature Federal Credit Union High-Yield Checking Account offers interest earning up to balances of $40,000.

If the balance exceeds the maximum limit, the interest rate on the exceeded amount is near zero. Therefore, keeping a regular balance above the maximum cap results in a lower APY for the account.

Increased Financial Data Risk

With the rise of digital banking, there’s a potential risk of exposing sensitive financial information. Using a debit card more frequently, which is often required for high-yield checking accounts, can elevate the risk to financial data since debit cards generally offer fewer fraud liability and consumer protection features compared to credit cards.

Comparing High-Yield Checking Accounts

Before deciding on a high-yield checking account, it’s important to compare your options. Evaluating factors such as fees, APY offerings, and account requirements can help you find the best fit for your financial needs.

When comparing high-yield checking accounts, look for competitive APY offerings, as higher rates directly influence the returns on the account balance. Furthermore, evaluating fees is essential, as accounts without fees or with easily waivable fees enhance net earnings.

Additional features such as ATM fee refunds and account requirements are important factors to consider, as they can impact the overall value and maintenance of high-yield checking accounts.

Fees and Charges

Fees and charges are an important consideration when comparing high-yield checking accounts. These accounts may have typical fees such as monthly service charges, ATM fees, and overdraft or nonsufficient funds (NSF) fees. It is important to review the fee schedule before opening an account..

Monthly service fees can impact overall returns, but some high-yield checking accounts offer the following benefits:

  • No monthly maintenance charges or waived fees if account balances remain above a certain threshold, such as $500
  • Broad ATM network access and fee reimbursements, mitigating or eliminating out-of-network ATM fees
  • Excessive transactions or withdrawals beyond a specified allowance may incur fees, which can reduce the attractiveness of high-yield checking accounts.

APY Comparison

Comparing APY offerings is essential when looking at different high-yield checking accounts. These accounts can offer interest rates of 3% or higher, which significantly exceeds the average rates for traditional interest-bearing checking accounts.

Some high-yield checking accounts use a tiered APY structure where different balance portions earn varying interest rates, with the highest advertised rate applicable only up to a certain balance amount. It’s important to verify if a high-yield checking account provides APY for the full account balance, or if there are caps limiting the balance that can earn the highest rate.

When comparing high-yield checking accounts, it’s beneficial to consider any additional interest-earning opportunities offered, as these can contribute to a higher overall APY when all conditions are met.

Account Requirements

Evaluating account requirements is another important aspect when comparing high-yield checking accounts. These may vary, with some accounts having high minimums, while others may have none at all.

For example, Connexus Credit Union Xtraordinary Checking is an account that does not require any minimum opening deposit to open. Understanding these requirements can help you choose the most suitable high-yield checking account for your needs.

Top High-Yield Checking Accounts to Consider

When it comes to choosing a high-yield checking account, there are several top contenders to consider. These accounts offer competitive APYs, additional perks, and specific account requirements, providing a range of options for consumers.

Some banks and credit unions that offer high APYs include:

  • Orion Federal Credit Union: 6.00% APY
  • Farmers Savings Bank: up to 9.01% APY
  • OnPath Federal Credit Union: 7% APY on balances up to $10,000
  • Presidential Bank: 4.62% APY on balances up to $25,000

In addition to competitive APYs, these accounts come with features such as:

  • Early direct deposit
  • ATM reimbursements
  • Overdraft protection
  • No monthly maintenance fee
  • Cashback rewards

Discover Bank’s Cashback Debit account stands out with no account fees, providing cost-efficiency alongside the benefits of high APY and account perks.

Alternatives to High-Yield Checking Accounts

While high-yield checking accounts offer many benefits, they are not the only way to optimize returns on your cash reserves. Alternatives such as high-yield savings accounts, money market accounts, and CDs can offer diversified approaches to managing and growing your money.

High-yield savings accounts are advantageous for growing an emergency fund or short-term savings due to interest rate advantages, particularly when paired with high-yield checking accounts to manage balances exceeding the threshold. A high yield savings account, money market account, and cash management accounts provide competitive interest rates and may offer benefits such as check writing and debit card access, similar to a savings account with high-yield checking accounts.

Pairing high-yield checking accounts with other high-interest bearing accounts such as high-yield savings or CDs can provide a diversified approach to managing and optimizing returns on cash reserves.

Bottom Line

High-yield checking accounts, also known as high interest checking accounts or rewards checking accounts, offer an opportunity to earn more through higher interest rates compared to standard checking accounts, with some accounts offering rates as high as 3% or more. However, they may come with requirements such as a minimum number of transactions or maintaining a certain balance to earn the highest advertised APY.

In addition, the availability of high-yield checking accounts can be limited, which means you may need to switch banks or credit unions to access the best rates. It’s also important to remember that interest earned on high-yield checking accounts may be subject to taxes, which could reduce the overall financial benefit.

Despite these considerations, high-yield checking accounts are protected up to $250,000 by either the Federal Deposit Insurance Corp (FDIC) or NCUA, ensuring the safety of deposits in case of financial institution failure.

Frequently Asked Questions

How does a high-yield bank account work?

A high-yield bank account works by providing a higher interest rate than traditional accounts, allowing your interest to compound more frequently, resulting in a greater return. This can vary depending on the account, with some compounding interest daily and others monthly.

Are high-yield bank accounts worth it?

High-yield bank accounts are not the best for long-term wealth growth, as the rate of inflation may outpace the yield earned, making it better to consider investing your money instead.

What is a high-yield checking account?

A high-yield checking account offers higher interest rates than regular checking accounts, allowing you to earn more on your balance.

How do high-yield checking accounts offer higher interest rates?

High-yield checking accounts offer higher interest rates by setting specific requirements for customers, like minimum debit card transactions or maintaining a certain balance. This allows banks to offer better interest rates as a reward for meeting these conditions.

What are the benefits of high-yield checking accounts?

High-yield checking accounts offer the opportunity to earn passive income, easy access to funds, and lower fees, while also providing convenient transaction methods and federal insurance. Consider opening one to benefit from these advantages.

Meet the author

Crediful is your go-to destination for all things related to personal finance. We're dedicated to helping you achieve financial freedom and make informed financial decisions. Our team of financial experts and enthusiasts brings you articles and resources on topics like budgeting, credit, saving, investing, and more.