Most checking accounts pay little or no interest

Most checking accounts in the United States pay zero interest on the money you keep in them. Banks use the money you deposit to make loans and investments, and they keep the profit from that activity. In return, they offer you a safe place to store your money and the ability to withdraw it whenever you need it — but not a financial return.

Some banks do offer checking accounts that pay a small amount of interest, but the rate is usually very low. You might earn a fraction of a percent per year, which means on a $1,000 balance you could earn less than a dollar annually. The interest rate also changes based on what the Federal Reserve does with its own rates, so what you earn this month may be different next month.

Key Takeaways

  • Traditional checking accounts from most banks pay zero interest, though some online banks and credit unions offer rates between 0.01% and 0.5% annually.
  • The interest you earn on a checking account depends on your account balance, the bank's rate, and how long your money sits in the account.
  • Interest rates on checking accounts change regularly and are usually much lower than rates on savings accounts at the same bank.
  • If earning interest is important to you, a savings account or money market account at the same bank typically pays more than a checking account.

Why banks don't pay much interest on checking accounts

Banks make money by lending out deposits and charging borrowers interest. When you put money in a checking account, the bank can lend that money to someone buying a house or a car, and the borrower pays the bank interest. The bank keeps most of that interest as profit and gives you nothing — or almost nothing — in return.

Checking accounts are designed for frequent movement of money in and out. You might deposit your paycheck, pay bills, withdraw cash, and move money to savings all in the same week. Because the bank cannot count on your money staying put, it does not offer interest as an incentive to keep it there. Savings accounts, by contrast, are meant for money you leave alone, so banks sometimes pay interest on those.

When you might find interest-bearing checking accounts

Online banks sometimes offer checking accounts with interest rates between 0.01% and 0.5% per year. These banks have lower overhead costs than brick-and-mortar branches, so they can afford to pay a little interest. The rate varies by bank and changes frequently.

Credit unions — member-owned financial institutions — also sometimes pay interest on checking accounts. Credit unions return profits to members rather than shareholders, so they may offer better rates than traditional banks. The rate depends on the specific credit union and the account type.

Some banks offer premium or high-balance checking accounts that pay interest if you keep a large minimum balance, often $25,000 or more. If your balance drops below that threshold, the interest rate may drop to zero or the account may charge you a monthly fee instead.

How interest on checking accounts is calculated

Banks calculate interest based on three things: your account balance, the interest rate the bank offers, and how long your money stays in the account. Most banks calculate interest daily but pay it monthly.

Here is a straightforward example: if your checking account pays 0.05% annual interest and you keep a $2,000 balance for the entire month, you would earn roughly $0.08 that month (though the exact amount depends on how many days are in the month). That same $2,000 in a savings account paying 4% would earn about $6.67 per month — a much larger difference.

The interest rate on checking accounts is almost always lower than the rate on savings accounts at the same bank. If you have money you do not need to access frequently, moving it to a savings account will earn you more.

How interest rates change over time

The interest rate your bank pays on checking accounts is not fixed. Banks raise and lower these rates based on what the Federal Reserve does with its own interest rates. When the Federal Reserve raises rates, banks may increase the interest they pay on deposits. When the Federal Reserve lowers rates, banks usually lower the interest they pay as well.

This means the rate you see today may be different in three months or six months. If you are choosing a bank partly because of its interest rate, check the current rate before you open the account, but understand that it may change after you join.

Comparing checking accounts if interest matters to you

If you want to earn some interest on your money, compare what different banks offer before you open an account. Look at the current interest rate, but also check whether there are conditions attached — like a minimum balance requirement or a limit on how many deposits you can make per month.

Also compare what the bank charges in monthly fees, overdraft fees, and other costs. A checking account that pays 0.1% interest but charges a $12 monthly fee will cost you money overall. The fee usually outweighs any interest you would earn.

If earning interest is a priority, you might keep a small checking balance for daily spending and put the rest of your money in a savings account or money market account at the same bank. That way you have quick access to cash when you need it, but your larger balance earns a better rate.

Frequently Asked Questions

Can I earn interest on a regular checking account?

Most regular checking accounts pay zero interest. Some online banks and credit unions offer checking accounts with small interest rates, usually between 0.01% and 0.5% per year. You would need to check with your specific bank to see what they offer.

Why does my savings account pay more interest than my checking account?

Banks pay more interest on savings accounts because you are expected to leave the money there longer. Checking accounts are for frequent transactions, so banks do not offer interest as an incentive. Savings accounts encourage you to keep money deposited, so banks can lend it out for longer periods and pay you a share of the profit.

If I keep a large balance in checking, will I earn more interest?

Usually no. A larger balance does not change the interest rate the bank pays — it just means you earn slightly more total interest on that larger amount. Some premium checking accounts do pay interest only if you maintain a very high minimum balance, like $25,000, but these are uncommon.

Does the interest on checking accounts get taxed?

Yes. Any interest you earn, even a small amount, is considered income and must be reported on your tax return. Your bank will send you a form called a 1099-INT if you earn $10 or more in interest during the year. The amount is usually so small that it does not change your taxes significantly.

Should I choose a bank based on checking account interest rates?

Probably not. The interest you earn on a checking account is usually so small that it should not be your main reason for choosing a bank. Focus instead on low fees, convenient branch locations or ATMs, good customer service, and whether the bank offers the other products you need.