Do checking accounts or savings accounts earn interest?

Most checking accounts don't earn interest, but savings accounts do. Discover how interest-bearing checking and savings accounts work, what other types of accounts earn interest and when they can be a smart addition to your personal finance strategy.

Do checking accounts earn interest?

Generally, checking accounts don't earn interest. However, they do offer other important banking benefits:

• Simple options for paying bills, whether by check or online banking
• Access to your paycheck through direct deposit
• Freedom to make a large number of transactions
• Easy deposits and withdrawals at ATMs
• Convenient debit card purchases

However, some interest-bearing checking accounts let you earn interest on your balance. You'll have full access to your money when you need it, with the same convenience and flexibility as a traditional checking account. That makes it a great option for accounts with higher balances.

How does a checking account earn interest?

Checking account interest rates are usually expressed as an annual percentage yield (APY). The APY represents the total amount you'll earn in a year through compounding interest. It shows how your money grows as you earn interest on both your original balance and the interest you've already accumulated.

As with a savings account interest calculator, you can easily calculate the checking account interest you'll earn with an online compound interest calculator. Keep in mind that your account balance affects how much interest you earn. Rates may also vary based on the federal funds rate set by the Federal Reserve.

Traditional checking account vs interest-bearing checking account: What’s the difference?

Traditional checking accounts and interest-bearing checking accounts serve the same basic purpose: They allow you to make everyday purchases, pay bills, use a debit card and withdraw cash from ATMs. The key difference is that traditional checking accounts do not pay interest, while interest-bearing checking accounts do. However, to earn interest, you typically need to meet certain requirements, such as maintaining a minimum balance. If you fail to do so, you may face fees or penalties that could offset any interest earned.

What to consider before opening an interest-bearing checking account

Before opening an interest-bearing checking account, understanding the details can help ensure it's a good fit for your needs and goals.

Essential checking account specifics to consider include:

• Minimum balance requirement: You'll likely need to maintain a certain balance to earn interest or avoid fees.
• Monthly activity requirement: Banks typically require you to meet certain account activity conditions to earn interest.
• Account fees: Monthly maintenance fees are usually waived when you maintain the required balance. However, if your balance falls below that amount, the fees could offset any interest you've earned.
• Compounding frequency: Find out how often interest is compounded (daily, monthly or quarterly). The more frequently it compounds, the faster your money can grow.
• FDIC insured: The account should be insured by the Federal Deposit Insurance Corporation (FDIC) with banks or the National Credit Union Administration (NCUA) with credit unions.

Do savings accounts earn interest?

Yes, most savings accounts earn interest, but the rate can vary. When you open a new savings account, ask about the different options available and how you can earn the highest interest rate.

The interest rate for savings accounts is typically higher than what you'd earn with an interest-bearing checking account. That makes a savings account a better investment to grow your money over time.

Is it better to keep money in checking or savings?

Checking and savings accounts serve different purposes, so which account you choose depends on your specific needs. With easy, convenient access to your money when you need it, a checking account is ideal for your daily financial transactions:

• Withdrawing cash from ATMs
• Paying bills
• Making debit card and check transactions

While you can access your savings account funds when needed, you'll usually need to transfer the money to your checking account first or make a cash withdrawal at a branch. A savings account helps you grow your money over time for your savings goals, such as:

• An emergency fund
• A down payment on a home
• Setting aside money for the future

What other types of accounts earn interest?

In addition to a traditional savings account, you may want to explore other interest-bearing accounts to help you reach your financial goals.

Money market accounts

Money market accounts generally require a higher minimum balance than traditional savings accounts. They offer a combination of checking and savings account features, such as the ability to write a limited number of checks each month while still earning interest.

CD accounts

Certificate of deposit (CD) accounts allow you to make an initial deposit and earn interest on the balance over a set period, such as six months or one year. If you withdraw funds from the CD account before that time, you typically have to pay an early withdrawal penalty.

Brokerage accounts

Brokerage accounts are investment accounts that allow you to buy and sell interest-earning federal money market funds as well as stocks and bonds.