Interest-earning checking accounts: Good idea?

There are many different checking account options for the average bank customer, but one of the most popular is the checking account that pays interest to account holders. While this type of account may be a good option for some, there are some important points to consider.

Minimum balance considerations:

The interest earned on a checking account is generally pretty low and many of these accounts have strict requirements about the amount of money that must be kept in them. If the minimum balance is not sustained, there may be hefty maintenance fees on the account.

Taxes will be due:

Any money that you earn taxable interest on must be claimed on your annual tax forms and taxes must be paid on the gains. While this won’t eradicate all of the earnings you make on the account, it is important to consider especially if you get hit a few times with a fee for falling below the minimum balance.

You could earn more money elsewhere:

As we mentioned in number 1, the interest earned in an interest bearing checking account may not be substantial. Money market accounts or savings accounts could offer more interest—but CD rates, bonds and other instruments may offer substantially more.

It is important to weigh your options, compare bank rates, and not leave too much money in an interest bearing checking account when it could be working harder for you elsewhere. It could even be put to better use paying off debt and reducing interest charges.

Banking tips: This tip was originally posted on 10-28-2010 at 10:19 am.

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