How Does a Dividend-Bearing Checking Account Work?

When you choose a checking account, you’re not just picking a place to keep your money. You’re also choosing a tool that can help you manage your money and even, in some cases, add to your income with dividends.

Addition Financial is a credit union and that means that our members are owners. For that reason, we offer a dividend checking account that allows our members to share in our profits. How does dividend checking work? Here’s what you need to know.

What is Dividend Checking?

A dividend checking account is an account that pays dividends to the account holder instead of interest. While interest-bearing checking accounts exist, they typically pay a low interest rate. Some banks pay interest on checking accounts and there may be minimum balance requirements to open a checking account that will allow you to earn interest on your balance.

By contrast, dividend-bearing checking accounts are available only at credit unions because credit union members are also owners. Dividends represent members’ shares of the credit union’s profits.

In most cases, the dividends you can earn at a credit union are higher than the interest rates you would earn at a bank. There may be a minimum balance required before the credit union will pay dividends. For example, our Benefits Checking requires a minimum balance of $1,000 to earn dividends.

How Does Dividend Checking Work?

Dividend checking works in the same way that interest checking works. Provided you meet the requirements laid out by your credit union, you’ll earn dividends on a regular basis.

Let’s look at our Benefits Checking account as an example. We have no minimum balance requirement, but you must meet one of the following two requirements to qualify:

  1. You must have at least 20 debit card transactions per month with a minimum of $10 per transaction; or
  2. You must have a cumulative direct deposit amount of $2,000 or more.

Some credit unions pay dividends on a quarterly or even an annual basis, but that’s not the case at Addition Financial. Our dividends compound daily and we pay monthly. That means that every month you have a qualifying account, you’ll earn dividends on your balance.

What Are the Benefits of a Dividend-Bearing Checking Account?

If you open a dividend-bearing checking account, here are some of the benefits you should expect:

  • Your money will earn money. The most obvious benefit of a dividend-bearing checking account is that your balance will earn regular dividends provided you meet the requirements to do so. You may even qualify for increased dividends as your balance increases.
  • You’ll have ready access to your money. The money in your dividend-bearing account will be accessible to you at any time you need, whether you make a purchase with your debit card, withdraw funds or write a check.
  • You’ll have all the features you need. Dividend-bearing checking accounts offer the same convenience that traditional checking accounts do. You’ll be able to enroll in direct deposits, automate withdrawals, take advantage of overdraft protection, transfer funds and use online and mobile banking.
  • Fees are minimal. Many credit unions charge low or even no fees for their dividend-bearing checking accounts.
  • Insurance. Credit union accounts are not protected by the FDIC, but they are insured by the NCUSIF up to $250,000 per account holder.

These benefits mean that it’s both safe and financially advantageous to open a dividend checking account.

What Are the Risks of a Dividend-Bearing Checking Account?

There are not many risks associated with having a dividend checking account, but here are a few potential downsides to consider:

  • You may pay fees. Some credit unions do charge minimal fees for dividend checking accounts. There may be fees if your account dips below a certain balance.
  • You may need to maintain a minimum balance. It’s common for credit unions to require a minimum balance to earn dividends. 
  • You may need to make a minimum number of debit card transactions. Another common requirement is that you’ll need to make a specified number of debit card transactions to qualify for dividends. For example, our Benefits Checking account has a requirement of 20 debit card transactions per month with a minimum transaction amount of $10.

If you enroll in direct deposit with your employer and use your debit card frequently, it’s unlikely that you’ll have any difficulty meeting the requirements to open a dividend checking account.

What is the Typical Rate of Return on a Dividend Checking Account?

Before you open a dividend checking account, you’ll want to be aware of what your dividends will yield. As a reference point, the average interest rate on checking accounts offered by banks is 0.06% APY. 

It’s difficult to find an average yield for credit unions because the rates can vary widely depending on the credit union. They may also be changed at any time since they are tied to the credit union’s profits.

That said, there are some credit union checking accounts that pay dividends between 1% and 5%, which is significantly higher than what you could earn from an interest-bearing checking account at a bank.

Are There Different Levels of Dividends That Are Offered Through a Dividend-Bearing Checking Account?

As we mentioned above, the return on dividend-bearing checking accounts can vary greatly from credit union to credit union. At Addition Financial, our Benefits Checking account is the only checking account that pays dividends; other credit unions may have more than one checking account that pays dividends. Credit union savings accounts all pay dividends.

The most common qualifier for a dividend-bearing checking account is the account balance. While there are often other requirements, such as making a certain number of debit card transactions, the balance is what may be used to determine your dividend rate.

Some credit unions offer tiered dividend rates that are based on the balance in the account and some may offer high-yield checking accounts. To qualify for a high-yield account, you may need to maintain an account balance of $10,000, $25,000 or more.

How Can I Maximize My Earnings from a Dividend Checking Account?

There are several things you can do to maximize the earnings from your dividend checking account:

  1. Direct deposit. Signing up for direct deposit with your employer can help you meet the requirements to earn dividends and keep your balance where it needs to be. For example, if you have cumulative direct deposits of $2,000 or more per month, you can earn dividends for money you keep in our Benefits Checking account.
  2. Use your debit card. If you don’t have direct deposit or your deposits aren’t high enough to qualify for dividends, the other option is to check your account’s requirements and make enough debit card transactions each month to qualify for dividends. 
  3. Transfer money if needed. If you have both a dividend-bearing checking account and a dividend-bearing savings account, you may want to temporarily transfer money from your savings account if there’s a risk of your checking balance dipping below the minimum to earn dividends. However, you should do the math first. If you have a high-yield savings account and would need to transfer a significant amount to meet the requirements for checking dividends, you may be better off (and earn more) by leaving your money in your savings account.

These tips can help you maximize the dividends you earn on your checking account because you’ll always be in compliance with the requirements to earn dividends.

How to Open a Dividend Checking Account

You may be wondering how to open a dividend checking account. The process is easy.

Since credit unions pay dividends, the first step is to join a credit union in your area. Most credit unions offer membership to people who are in their service area or meet other requirements, such as employment. For example, Addition Financial’s charter is based on community membership, which means that anybody who lives, works, worships or attends school in Orange, Osceola, Seminole, Lake, Alachua, Brevard, Duval, Flagler, Hernando, Highlands, Hillsborough, Indian River, Manatee, Marion, Martin, Okeechobee, Pasco, Pinellas, Polk, Sarasota, St. Johns, St. Lucie, Sumter or Volusia County may join.

Most credit unions have a minimum deposit to open an account and may also charge a one-time membership fee—ours is just $10. To make the most of your dividend checking account, the best option is to make your initial deposit in the amount of the minimum balance requirement to earn dividends.

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Earn Dividends with Our Benefits Checking Account

Opening a dividend-bearing checking account can help you earn money on all your deposits. With simple requirements to qualify for dividends and the other advantages of joining a credit union, there’s no reason not to take advantage of dividends on your checking account balance.

Are you looking for a dividend checking account? Addition Financial has what you need. Click here to read about our Benefits Checking account and join today!

The content provided here is not legal, tax, accounting, financial or investment advice. Please consult with legal, tax, accounting, financial or investment professionals based on your specific needs or questions you may have. We do not make any guarantees as to accuracy or completeness of this information, do not support any third-party companies, products, or services described here, and take no liability or legal obligations for your use of this information.