Most checking accounts do not earn interest, but some do

The short answer is: most checking accounts earn little to no interest. A traditional checking account from a large bank typically pays zero percent interest on your balance. However, some banks and credit unions offer interest-bearing checking accounts that do pay a small amount of interest on the money you keep in them.

The reason most checking accounts don't pay interest is historical. Banks have traditionally used checking accounts as a way to gather deposits they can lend out to other customers — the bank keeps the interest from those loans. They offered checking accounts as a convenience to customers, not as an investment tool. That model still dominates, though it is slowly changing.

Whether you can find an account that pays interest depends on where you bank and how much money you keep in the account. The interest rates vary widely, and some accounts have conditions attached — like a minimum balance requirement or a limit on how many times you can withdraw money each month.

Key Takeaways

  • Large traditional banks typically pay zero interest on checking accounts, while online banks and credit unions are more likely to offer interest-bearing checking accounts.
  • Interest rates on checking accounts that do pay interest are usually very low — often less than one percent per year — and change based on what the Federal Reserve does with interest rates.
  • Some interest-bearing checking accounts require you to meet conditions like maintaining a minimum balance, setting up direct deposit, or making a certain number of debit card transactions each month.
  • The interest you earn on a checking account is taxable income, and your bank will send you a form at tax time reporting how much you earned.

Why banks stopped paying interest on checking accounts

In 2010, the federal government banned banks from paying interest on most business checking accounts. The rule was meant to prevent risky behavior by banks during the financial crisis. But even before that rule, most banks had already stopped paying meaningful interest on personal checking accounts.

The reason is straightforward: banks make money by borrowing deposits from you at a low rate (or zero percent) and lending that money to other customers at a higher rate. If a bank paid you interest on your checking account, that profit margin would shrink. So banks decided it was cheaper to offer checking accounts for free or with a small monthly fee, and keep all the interest from lending your money out.

This model worked for decades because customers had few other options. Today, online banks and credit unions compete differently. They have lower overhead costs and sometimes choose to pass some of that savings to customers in the form of interest on checking accounts.

Which banks and credit unions offer interest on checking accounts

Online banks are the most likely to offer interest-bearing checking accounts. Banks like Ally, Charles Schwab, and others that operate primarily online have lower costs than brick-and-mortar banks, and they use interest-bearing checking accounts as a way to attract customers. Credit unions also frequently offer interest on checking accounts, though the rates and terms vary by credit union.

Large national banks — Chase, Bank of America, Wells Fargo, and similar institutions — typically do not pay interest on standard checking accounts. Some offer premium checking accounts with higher fees that do pay interest, but the interest rate is usually so low that it does not offset the monthly fee.

The best way to find out what is available to you is to contact banks and credit unions in your area or that you can join online, and ask directly what they pay on checking accounts. Interest rates change frequently, so a rate that was advertised last month may be different today.

How much interest you can actually earn

Interest rates on checking accounts are typically very low. When interest rates in the economy are high, a competitive checking account might pay between 0.5 and 2 percent per year. When interest rates are low, many accounts pay 0.01 percent or less — meaning you earn almost nothing.

To understand what this means in real dollars: if you keep $1,000 in a checking account paying 1 percent interest per year, you would earn about $10 over the course of a year. If the account pays 0.01 percent, you would earn about 10 cents. The interest is paid monthly or quarterly, in small amounts.

The amount you earn also depends on your balance. Some accounts only pay interest on balances up to a certain amount — say, the first $25,000 — and pay nothing on anything above that. Others pay the same rate on all your money. Read the account terms carefully to understand how much you could actually earn with your expected balance.

Conditions that come with interest-bearing checking accounts

Banks that offer interest on checking accounts often attach conditions to earn that rate. Common requirements include maintaining a minimum balance (often $500 to $2,500), setting up direct deposit of your paycheck, or making a certain number of debit card transactions each month — sometimes 10 or more.

If you do not meet these conditions, the bank may pay you a much lower interest rate, charge you a monthly fee, or both. Some accounts also limit how many times you can withdraw money per month without penalty. Before opening an account, make sure you understand what you have to do to earn the advertised interest rate, and whether you can realistically meet those requirements.

Online banks tend to have fewer conditions than credit unions or smaller regional banks. If you are looking for an interest-bearing checking account, compare not just the interest rate but also the conditions attached to it.

How interest on checking accounts is taxed

Any interest you earn on a checking account is considered income by the IRS, and you have to report it on your tax return. If you earn more than $10 in interest during the year, your bank will send you a Form 1099-INT in January reporting how much you earned. You use this form to fill out your tax return.

The amount of tax you owe on the interest depends on your overall income and tax bracket. If you earn $10 in interest and you are in the 22 percent tax bracket, you would owe about $2.20 in federal income tax on that interest. This is one reason why the interest earned on checking accounts is so small — by the time you pay taxes on it, there is very little left.

Checking accounts versus savings accounts for earning interest

If your main goal is to earn interest on money you are saving, a checking account is usually not the best choice, even if it pays interest. Savings accounts and money market accounts typically pay higher interest rates than checking accounts because they are designed for saving rather than spending.

The tradeoff is that savings accounts usually limit how many times you can withdraw money per month without penalty, while checking accounts allow unlimited withdrawals. If you need to access your money frequently, a checking account makes sense. If you are saving money and do not need to touch it often, a savings account will earn you more interest.

Some people use both: a checking account for everyday spending and bill payments, and a savings account for money they are setting aside. This way you earn a higher interest rate on your savings while keeping a checking account for convenience.

Frequently Asked Questions

Can I earn interest on a checking account at a big bank like Chase or Bank of America?

Most standard checking accounts at large banks pay zero interest. Some offer premium checking accounts that do pay interest, but these usually come with monthly fees that are higher than the interest you would earn. You are generally better off with an online bank or credit union if earning interest on a checking account is important to you.

What is the highest interest rate I can find on a checking account right now?

Interest rates change frequently based on what the Federal Reserve does with interest rates in the economy. At any given time, online banks and some credit unions offer the highest rates, typically ranging from 0.5 to 2 percent when the economy has higher interest rates. Check current rates directly with banks and credit unions to see what is available today.

Do I have to pay taxes on the interest I earn from a checking account?

Yes. Any interest you earn is taxable income. If you earn more than $10 in a year, your bank sends you a Form 1099-INT that you use to report the interest on your tax return. The amount of tax you owe depends on your tax bracket.

Is it worth switching banks just to get interest on a checking account?

It depends on how much money you keep in the account and what other features matter to you. If you have $10,000 in the account and earn 1 percent interest, you make $100 per year before taxes. If switching banks means losing features you rely on or paying higher fees elsewhere, the interest might not be worth it. Compare the total picture, not just the interest rate.

Can I earn interest on a checking account at a credit union?

Many credit unions offer interest on checking accounts, and the rates are often competitive with online banks. However, rates and conditions vary by credit union. You have to be a member of a credit union to open an account there, which usually means living or working in a certain area or belonging to a particular group. Contact credit unions near you to ask what they offer.