What is an Interest-Bearing Account & Why Should You Open One?

Most people are familiar with the idea that savings accounts pay interest. What some don’t know is that interest-bearing checking accounts are also available and can be beneficial for those who want their money to be easily accessible while still earning interest.

At Addition Financial, we offer a interest-bearing checking account that allows members to earn a higher interest rate than they could at a bank. Because our account holders are members, they receive dividends instead of interest. Here’s what you need to know about interest checking and why you should consider opening an interest-bearing checking account.

What is an Interest-Bearing Account?

An interest-bearing account is any account where the account holder earns a return on their deposit. If you have an account with a credit union, then you’ll earn dividends instead of interest. That’s because every account holder is also a part owner. If you opt for a bank, you’ll earn interest. It’s common for credit unions to offer dividends that are higher than the interest rate offered by banks.

In most cases, interest checking accounts offer interest that compounds daily and is credited to the account on a monthly basis. You should make sure to check with your financial institution to be sure you understand how and when interest will accrue to your account.

How Does an Interest-Bearing Checking Account Work?

In many ways, an interest-bearing checking account operates in the same manner as a traditional checking account. There are a few key differences.

With both types of checking accounts, account holders deposit money. They can use the funds in their account in a variety of ways, including the following:

  • Writing checks
  • Withdrawing cash at an ATM using a debit card
  • Making online or in-person purchases with a debit card
  • Sending money with a peer-to-peer payment app like Zelle
  • Getting their pay automatically put into their account with direct deposit
  • Paying bills with online bill pay

Account holders can take advantage of mobile and online banking and get access to smart money management tools such as calculators.

Where traditional and interest-bearing checking accounts differ is in the opportunity to earn an annual percentage yield on your deposit account. Traditional checking accounts don’t pay dividends or interest, while interest-bearing accounts do. There is typically a minimum balance requirement to earn interest or dividends.

In most cases, dividends or interest are compounded daily and credited to the account monthly. As long as you maintain the minimum balance required, the money in your interest-bearing checking account will always be working for you.

Trying to find your ideal checking account?

What Are the Benefits of an Interest-Bearing Checking Account?

There are many benefits to choosing a checking account that pays dividends or interest over one that doesn’t. Here are some of the most important to help you in choosing the right checking account for your needs.

Your Money Will Grow

The biggest advantage of choosing an interest-bearing checking account instead of a traditional checking account is that your money will grow. Traditional checking accounts don’t pay interest, so you’ll need to have a savings account if you want your funds to earn money. That’s not the case with an interest-bearing checking account.

In most cases, dividends or interest will compound daily and be credited to your checking account once a month. Provided you maintain the minimum balance, you’ll earn interest every day. You can keep the interest you earn in your checking account or, if you prefer, transfer it to a savings or money market account where it can earn even more money.

You’ll Have Flexibility in How You Use and Access Your Money

When you keep your money in a traditional savings account, a CD or a money market account, you may be limited in using the funds in your account to make purchases or pay your bills. In some cases, you may not be able to access your money at all–a CD is an example.

With an interest-bearing checking account, you can access your money at any time. You can withdraw cash or make purchases with your debit card, write checks or even transfer funds to a friend using Zelle. In other words, you’ll have all the flexibility of a traditional checking account while earning interest on your deposit.

Your Money Will Be Safe

Credit union and bank accounts, including both checking and savings accounts, are typically insured by either the National Credit Union Association (NCUA) or the Federal Deposit Insurance Commission (FDIC) up to a maximum of $250,000.

Interest-bearing checking accounts are no exception to this rule. You should check to make sure that the financial institution you choose is insured. Most are, but it’s always a good idea to confirm their insurance before you open an account. You can use the NCUA’s Research a Credit Union feature or the FDIC’s Bank Find site, to confirm that your account will be insured.

You Can Take Advantage of All Traditional Checking Account Features

While interest-bearing checking accounts may not be as common as traditional checking accounts, they offer many of the same features while also paying dividends or interest. You should expect any interest-bearing account to offer the following features:

  • Checks
  • Debit card
  • Access to online banking features
  • A free mobile banking app
  • Overdraft protection
  • Access to financial education resources
  • Discounts on mortgages, car loans and other loans
  • Limited foreign ATM fee rebates

You should be sure to compare features before you choose a checking account and compare fees as well. Some of the most common fees include a monthly fee, overdraft fees and ATM fees.

Are There Any Drawbacks to Choosing an Interest-Bearing Checking Account?

There aren’t any major drawbacks to choosing an interest-bearing checking account instead of a traditional checking account. There is one potential issue you should know about because if you aren’t careful, it may prevent you from earning a return on your balance.

Most financial institutions that offer interest-bearing checking accounts impose a minimum balance requirement on deposits. For example, our Benefits Checking account has a $1,000 minimum balance requirement to earn dividends. In the event that your balance falls below the minimum, you won’t earn any dividends or interest for the duration. You’ll automatically begin earning again when your balance meets or exceeds the minimum requirement.

Can You Lose Your Money in an Interest-Bearing Checking Account?

One of the questions that we’re asked most frequently about our Benefits Checking account is whether there’s a risk of losing money. The short answer is no for most people, but let’s get into the details.

All deposits at Addition Financial are insured up to a maximum of $250,000. Provided your balance is below that cap, you can’t lose your money. The NCUA will cover your deposit, including any interest you’ve earned. If your balance is above that amount, then you might be at risk of losing the amount over the maximum insured amount. However, that’s not a likely outcome. Credit unions are owned by members and rarely fail.

Are There Minimum Requirements to Open an Interest-Bearing Checking Account?

The requirements to open an interest-bearing checking account will vary depending on which financial institution you choose. At Addition Financial, we’ve chosen to keep our requirements minimal and simple to encourage our members to start earning dividends on their checking account balances. Here are our requirements:

  • Addition Financial membership. You must be or become an Addition Financial member to open a Benefits Checking account. The membership fee is just $10–and it’s a lifetime membership, so you’ll only pay once. 
  • Share Savings Account. In addition to becoming a member, you’ll also need to open a Share Savings Account with a minimum deposit of $5.
  • An initial deposit. We don’t have a minimum deposit requirement to open a Benefits Checking account. However, you will need to put some money in your account when you open it. 

We have no other requirements to open a Benefits Checking account. As we mentioned earlier, we do require a minimum $1,000 balance to earn dividends on your deposit. Your Benefits Checking account will remain open if your balance dips below the minimum, but you won’t earn dividends until you bring the balance back up to the minimum.

Our charter is a community charter. That means that anybody who lives, works, attends school or vocational training or is an alum of any college, university or educational institution located 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 the Addition Financial family.

Watch Your Money Grow with Addition Financial

Choosing an interest-bearing checking account is one of the best ways we know to watch your money grow while still keeping it liquid and accessible. You can write checks, make ATM withdrawals and use your debit card to pay for purchases, all while earning dividends that compound daily.

Do you want a checking account that will help your money grow? Addition Financial is here to help! Click here to read about our Benefits Checking account and become a member 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.