An interest checking account is a checking account that pays interest on your balance, combining the convenience of everyday banking with the earning potential typically found only in savings accounts. While most checking accounts pay little to no interest, these accounts let you earn money on funds you need to keep accessible for daily expenses.

The appeal of interest checking accounts are straightforward: Instead of letting your spending money sit idle in a traditional checking account, you can earn interest while maintaining the unlimited transaction access that makes checking accounts convenient for bill paying, shopping and other regular activities.

Here’s what you need to know about how these accounts work and whether they make sense for your banking needs.

Bankrate Insight: Making your checking account work harder

“Interest checking accounts can be a smart choice if you naturally keep larger balances in checking. The key is understanding the requirements and fees involved. For some people, the extra earnings justify the higher balance requirements, while others are better served keeping minimal amounts in checking and maximizing savings account yields.”

— Hanna Horvath, CFP & Bankrate Banking Editor

How interest checking accounts work

Interest checking accounts function like regular checking accounts for daily transactions but pay interest on your account balance, typically calculated daily and paid monthly. The interest rate varies by bank and may depend on meeting certain requirements.

Many interest checking accounts use a tiered structure where you earn higher rates by maintaining larger balances or meeting specific criteria. For example, you might need to make a certain number of debit card transactions each month, set up direct deposit, or maintain a minimum balance to earn the advertised rate.

Unlike savings accounts that traditionally limited monthly transactions, checking accounts allow unlimited withdrawals, deposits, check writing and electronic transactions. This makes them suitable for your primary spending account while still earning some return on your money.

The interest earned is typically lower than what you’d get from a high-yield savings account, but higher than traditional checking accounts that pay nothing. The tradeoff is having easy access to your money for everyday expenses while still earning some return.

How interest-bearing checking accounts differ from traditional accounts

The most obvious difference is earning interest, but several other factors distinguish interest checking accounts from regular checking accounts.

Higher fees and minimum balances are common with interest checking accounts. According to Bankrate’s latest checking account study, interest checking accounts have an average monthly fee of $15.45 compared to $5.47 for noninterest checking accounts. To waive fees, you typically need to maintain an average balance of $10,210 — the highest amount ever recorded in Bankrate’s research.

Additional requirements often apply to earn the advertised interest rate. You might need to make a specific number of debit card transactions monthly, set up direct deposit or maintain minimum balances. Failing to meet these requirements could reduce your interest rate or trigger monthly fees.

Rate restrictions may apply, with some banks offering competitive rates only on portions of your balance. For example, you might earn 4 percent on the first $10,000 but just 0.1 percent on amounts above that amount.

However, some online banks offer interest checking accounts with lower fees and minimum balance requirements, making these benefits more accessible to average consumers. Here are the best free checking accounts on the market today

Interest checking accounts vs. money market accounts

Both account types offer interest earning potential and transaction capabilities, but they serve different purposes and have distinct limitations.

Transaction flexibility favors checking accounts. While money market accounts may limit certain types of withdrawals and electronic transfers per month, checking accounts typically allow unlimited transactions of all types. Exceeding transaction limits on money market accounts can result in fees or account conversion to checking.

Interest rates generally favor money market accounts. MMAs typically offer higher annual percentage yields than interest checking accounts, making them better for money you don’t need to access frequently.

Minimum balance requirements vary by institution but tend to be higher for money market accounts. This makes interest checking accounts more accessible if you don’t have substantial funds to commit.

Related reading: Money market accounts vs. checking accounts: Which is right for you?

Who should consider an interest checking account

Interest checking accounts make sense for specific banking situations rather than being universally beneficial.

These accounts are ideally for people who:

• Maintain substantial checking account balances
• Prefer keeping most of their liquid money in one easily accessible account
• Can easily meet the account requirements without changing their banking habits
• Want to earn something on money that would otherwise sit in non-interest checking

If you keep a minimal amount in your checking account and prefer maximizing savings yields or don’t want to deal with complex account requirements, you may want to consider other options.

Consider your actual banking habits rather than theoretical preferences. If you naturally keep $5,000 or more in checking for cash flow, earning interest on that money makes sense. If you typically keep just enough for monthly expenses, a regular checking account plus high-yield savings might work better.

Compare features and rates across different account types with Bankrate’s best checking accounts to find options that match your banking style and balance requirements.

Pros and cons of interest checking accounts

Pros

• Ability to earn interest on money you need to keep accessible for daily expenses
• Unlimited transaction flexibility unlike some money market accounts
• FDIC or NCUA insurance protection up to $250,000 on your deposits
• Ability to consolidate your banking needs into fewer accounts

Cons

• High minimum balance requirements to avoid monthly fees
• Possible caps on how much money earns competitive rates
• Requirements like minimum debit transactions or direct deposits
• Generally lower interest rates compared to dedicated savings products

Bottom line

Earning interest on your checking account can help you add to your account balance, even given the lower rates than you’d get with a savings account. To save even more, choose an account that charges no monthly service fee or lets you avoid the fee by maintaining a minimum monthly balance.

Before switching, carefully review the requirements, fees, and rate structures. Calculate whether the interest earned justifies any additional fees or minimum balance requirements compared to your current banking setup. The key is choosing accounts that match your actual banking habits rather than forcing your habits to match account requirements.

For higher yields on money you don’t need immediate access to, explore high-yield savings accounts that can complement your checking account strategy.

Consider money market accounts if you want competitive rates with some checking features but don’t need unlimited transactions.