Yes, some checking accounts earn interest, but the rate is usually very small

Most checking accounts do not earn interest. Your bank holds your money and uses it to lend to other customers, but they do not pay you for that privilege. However, some banks and credit unions do offer interest-bearing checking accounts — accounts that add a small amount of money to your balance each month based on how much you keep in the account.

The catch is that the interest rate is almost always low. A typical interest-bearing checking account might earn between 0.01% and 0.50% per year, depending on the bank and how much money you have in the account. That means if you keep $1,000 in the account for a year at 0.50%, you would earn about $5. At 0.01%, you would earn about 10 cents.

The reason the rate is so low is that checking accounts are meant for money you use regularly — money you spend. Banks prefer to pay higher interest on savings accounts, where you agree to leave the money untouched for longer periods. If earning interest is your main goal, a savings account or money market account will almost always pay more.

Key Takeaways

  • Most traditional checking accounts earn no interest at all, but some banks and credit unions offer checking accounts that do.
  • Interest rates on checking accounts are typically very low — usually less than 0.50% per year — so the actual money you earn is small.
  • To earn interest on a checking account, you usually need to meet requirements like keeping a minimum balance or setting up direct deposit.
  • If building savings is your goal, a separate savings account will almost always earn more interest than a checking account.
  • Online banks are more likely to offer interest-bearing checking accounts than traditional brick-and-mortar banks.

How interest on checking accounts actually works

When a bank pays you interest, they are paying you a percentage of your account balance. The bank calculates this percentage once a month or once a quarter, and adds the money directly to your account. The amount depends on two things: the interest rate the bank offers, and how much money you have in the account during that period.

Most banks calculate interest based on your average daily balance — the average of what you had in the account each day of the month. So if you had $1,000 in the account for 15 days and $500 for the other 15 days, your average daily balance would be $750. The bank would calculate interest on $750, not on $1,000.

Some banks also require you to meet conditions to earn any interest at all. Common requirements include keeping a minimum balance (often $500 to $2,500), setting up direct deposit, or making a certain number of debit card transactions each month. If you do not meet the requirement, the bank may pay you no interest that month, or may charge you a monthly fee instead.

Which banks offer interest on checking accounts

Online banks are far more likely to offer interest-bearing checking accounts than traditional banks with physical branches. Online banks have lower overhead costs, so they can afford to pay interest on checking accounts. Examples include Ally Bank, Charles Schwab Bank, and Discover Bank, though you should check their current rates since these change frequently.

Some credit unions also offer interest-bearing checking accounts. Credit unions are member-owned financial institutions that often have different rules than banks. If you belong to a credit union, ask whether they offer a checking account that earns interest and what the current rate is.

Traditional banks with branches — the kind you see on Main Street — rarely offer interest on checking accounts. If they do, the rate is usually so low that it barely matters. Your best move is to call or visit your bank's website and ask directly what rate they offer on checking accounts, and what conditions you need to meet.

When interest on checking makes sense

Interest on a checking account is worth considering if you keep a large balance in your checking account anyway. If you normally have $5,000 or more sitting in checking because you like having cash on hand, then earning even 0.25% per year means you are getting something instead of nothing. That $5,000 would earn about $12.50 per year — not life-changing, but real money.

Interest on checking also makes sense if the account has no monthly fee and no minimum balance requirement. Some banks offer interest-bearing checking accounts that are completely free to open and use. In that case, there is no downside to choosing that account over a non-interest-bearing one.

However, if the account requires you to keep a large minimum balance to earn interest, or charges a monthly fee if you do not meet certain conditions, the interest you earn may not be worth the hassle. Do the math: if you have to keep $2,500 in the account to earn 0.10% interest, you are earning about $2.50 per year. That is not worth restricting how you use your money.

Interest-bearing checking versus savings accounts

The main difference between an interest-bearing checking account and a savings account is how you use the money. A checking account is designed for regular spending — you can withdraw money as many times as you want, and you usually get a debit card to use at stores. A savings account is designed for money you want to keep, and most banks limit how many times per month you can withdraw.

Because savings accounts are meant for longer-term money, banks pay higher interest on them. A typical online savings account might earn 4% to 5% per year right now, compared to 0.01% to 0.50% on a checking account. If you have money you do not plan to spend soon, putting it in a savings account instead of a checking account will earn you significantly more interest.

Many people use both: a checking account for everyday spending and bills, and a savings account for money they are building up. This way you earn interest on the money you are saving while keeping your spending money easily accessible.

What to look for if you want interest on checking

If you are shopping for an interest-bearing checking account, compare these details across banks before you decide. First, check the actual interest rate — not just whether the account earns interest, but how much. Rates change, so look at what the bank is offering right now, not what they offered last year.

Second, find out what conditions you need to meet. Does the account require a minimum balance? If so, how much? Do you need to set up direct deposit? Do you need to make a certain number of debit card transactions per month? Write down the requirements for each bank you are considering, because meeting them is what unlocks the interest.

Third, check whether there are any monthly fees. Some interest-bearing checking accounts are free; others charge $10 or $15 per month if you do not meet the conditions. A $12 monthly fee wipes out years of interest earnings on a small balance.

Finally, make sure the bank is insured by the Federal Deposit Insurance Corporation (FDIC) or, if it is a credit union, by the National Credit Union Administration (NCUA). This insurance protects your money if the bank fails. You can check whether a bank is FDIC-insured by searching the FDIC's website.

Frequently Asked Questions

How much interest will I actually earn on a checking account?

It depends on the rate and your balance. If you keep $1,000 in an account earning 0.25% per year, you would earn about $2.50 per year, or about 21 cents per month. If you keep $10,000 in the same account, you would earn about $25 per year. The interest is real but small, so it should not be your main reason for choosing a bank.

Do I have to pay taxes on checking account interest?

Yes. Interest you earn on a checking account is taxable income. If you earn more than $10 in interest during the year, the bank will send you a form called a 1099-INT, and you will report that interest on your tax return. The amount is usually so small that it does not change your taxes much, but you do need to report it.

What if my bank stops paying interest on checking accounts?

Banks can change their interest rates or stop offering interest on checking accounts at any time. If this happens, you can switch to a different bank. You are not locked in — you can close the account and move your money to another bank that still offers interest on checking, or switch to a savings account at your current bank.

Is an interest-bearing checking account safer than a regular checking account?

No, they are equally safe as long as the bank is FDIC-insured. The insurance protects your money up to $250,000 per account type at each bank, whether the account earns interest or not. The interest rate does not affect how safe your money is.

Can I earn interest on a joint checking account?

Yes. Interest is calculated on the total balance in the account, regardless of how many people own it. If you and a spouse have a joint checking account with $5,000 in it, the interest is calculated on the full $5,000 and added to the account for both of you to use.