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.
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.
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:
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.
If you open a dividend-bearing checking account, here are some of the benefits you should expect:
These benefits mean that it’s both safe and financially advantageous to open a dividend checking account.
There are not many risks associated with having a dividend checking account, but here are a few potential downsides to consider:
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.
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.
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.
There are several things you can do to maximize the earnings from your dividend checking 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.
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.
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!