Find Balance in Your Banking: The Pros and Cons of Interest-Earning Checking Accounts


  • September 8, 2022
  • By Reyna Gobel, Expert

Can there be a better option than an account that earns interest when it comes to banking? It depends. If your account balance is high, you may be hurting your finances by not having your funds in a savings account that offers a higher interest rate. However, there are some advantages to having your funds in an interest-earning checking account instead. In this article, we’ll dive into some of the pros and cons of these interest-earning checking accounts. 

Pro: You’re Earning Interest On Money You’ll Spend On Regular Bills

Earning interest on a savings account is great, but earning interest on the money that you’re using to pay your regular bills is even better. The caveat? You could be saving too much money in your checking account and not getting the higher interest rate offered by savings accounts.

One way you can take advantage of interest-earning opportunities from both accounts is to limit the amount in your checking account to a small cushion of funds, in addition to enough money to cover a month of bills or less. You can also compound the money you’re earning by using a credit card to pay your bills. You’ll be able to earn a percentage back from your purchases, and can pay off your monthly bill using money from your checking account, which will also be earning interest. 

Keep in mind, however, that you shouldn’t max out your cards to do this—even if you’re paying off the balance each month. Maxing out cards can hurt your credit score.

Con: Balance Minimums Can Be High

Often, checking accounts that earn interest require a high balance in order to open and maintain an account. Though your account typically won’t close if you don’t maintain this minimum, you could end up paying a monthly service charge that can be over $10 per month. 

Make sure you have a good idea of what kind of standing amount you can maintain before opening an interest-earning checking account. Paying a fee once in a while is fine, but paying it monthly will cost you more than what you’d be earning in interest.

Pro: Encourages a Checking Account Cushion

Having a checking account cushion is one of the best things you can do for your finances. It’s basically an amount that you deposit into your account and never spend. For instance, let’s say you chose to deposit a cushion of $300 in your account. Then, anything you deposit afterwards can go towards your regular bills. 

It’s good to build up a cushion in case you have a check that’s late or you have automatic payments withdrawn from your account. Having a checking account that awards interest also encourages leaving a certain amount of money in your account at all times, as you will be earning interest off this amount regardless of how much you withdraw. However, if you can’t maintain the account minimums in order to avoid fees, it may be better for you to choose a different account option and still build your cushion.

Con: Interest Rates Can Be Low

You’ll likely earn less interest in a checking account versus a savings account, so it is important to compare rates for both. When in doubt about how you will be able to earn more interest, contact your financial provider to help you compare rates

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