Most checking accounts pay little or no interest, but some banks do offer it
The short answer: your bank probably does not pay interest on your checking account, but some do. The amount varies widely — from nearly zero to around 4 or 5 percent, depending on the bank and the balance you keep. The only way to know what your bank pays is to ask directly or check your account agreement.
Interest on checking accounts is less common than it used to be. For decades, banks paid interest on most checking accounts. Then in the early 2000s, most stopped. Today, interest-bearing checking accounts exist, but you have to search for them — they are not the default.
Why does this matter? If you keep $5,000 in a checking account that pays zero interest, you earn nothing. If that same bank offers a checking account that pays 4 percent, you would earn roughly $200 a year on that money. Over time, that difference adds up.
Key Takeaways
- Most traditional banks and large national chains pay zero or near-zero interest on checking accounts.
- Online banks and some credit unions are more likely to offer checking accounts with interest rates between 2 and 5 percent.
- Interest-bearing checking accounts often come with conditions: you may need to make a certain number of debit card transactions per month, keep a minimum balance, or receive direct deposit.
- Your account agreement or the bank's website will show the current interest rate and any conditions attached to it.
- The interest rate on checking accounts can change at any time, so what your bank pays today may not be what it pays next month.
How to find out what your bank pays right now
The fastest way is to log into your online banking account and look for the account details or account summary page. This page usually shows your current interest rate and the amount of interest you earned in the last month or quarter.
If you cannot find it online, call your bank's customer service number — the one on the back of your debit card. Tell them you want to know the current interest rate on your checking account. They will give you the rate and explain any conditions. Write down the rate and the date you asked, in case it changes later.
You can also read your account agreement, though it is often written in dense language. Look for a section called "Interest" or "Rate Information." The agreement may be in your welcome packet, or you can request it from the bank.
Why some banks pay interest and others do not
Banks make money by lending out the money you deposit. When they lend that money to other customers as mortgages, car loans, or business loans, they charge interest on those loans. The difference between what they earn on loans and what they pay you in interest is their profit.
When interest rates in the economy are high, banks can afford to pay you more interest because they are earning more on loans. When rates are low, banks pay less — or nothing — because they are earning less. This is why the interest rate your bank offers changes over time.
Online banks and credit unions often pay more interest on checking accounts than large national banks do. This is partly because they have lower overhead costs — they do not maintain physical branches — so they can afford to share more of their earnings with customers.
Conditions that often come with interest-bearing checking accounts
Banks do not offer interest on checking accounts out of generosity. They attach conditions to make sure the account is profitable for them. The most common conditions are:
- Minimum balance requirement: You must keep a certain amount in the account at all times — often $500 to $2,500. If your balance drops below that, you lose the interest rate or pay a fee.
- Direct deposit requirement: Your paycheck must be deposited electronically into the account each month. Some banks require a minimum deposit amount, like $500 per month.
- Debit card transaction minimum: You must use your debit card a certain number of times per month — often 10 to 15 transactions — to earn the advertised rate.
- Monthly fee waiver: The account may charge a monthly fee unless you meet the conditions above. If you do meet them, the fee is waived.
Before opening an interest-bearing checking account, read the fine print carefully. If you cannot meet the conditions — for example, if you do not have direct deposit — you may end up paying fees that erase any interest you earn.
The difference between checking account interest and savings account interest
Savings accounts almost always pay interest, and the rates are usually higher than checking account rates. A savings account might pay 4 to 5 percent, while a checking account at the same bank might pay 0.5 percent or nothing.
The reason is that banks expect you to withdraw money from checking accounts frequently — that is what checking accounts are for. Savings accounts are meant for money you leave alone, so banks can count on having that money longer and can pay more interest.
If you have money you do not plan to spend soon, a savings account is usually a better choice than a checking account, even if the checking account pays interest. You will earn more over time.
What happens if your bank changes the interest rate
Banks can change the interest rate on your checking account at any time. They are not required to give you advance notice, though many do. The rate might go up if the economy's interest rates rise, or down if they fall.
If your bank lowers the rate significantly, you have the option to move your account to a different bank. This is one reason to check your interest rate once or twice a year — so you know if it has dropped and can decide whether to stay or switch.
Some banks advertise a high interest rate to attract new customers, then lower it after a few months. If you are considering opening an account for the interest, ask the bank whether the rate is may provide or promotional, and for how long.
Frequently Asked Questions
If my bank pays zero interest, am I losing money?
You are not losing money — your balance stays the same. But you are missing out on earnings you could have made if you kept the money in an account that pays interest. The longer you leave money in a zero-interest account, the larger that missed opportunity becomes.
Can I move my checking account to a bank that pays interest?
Yes. You can open a new account at another bank and ask your employer to send your paycheck there instead. You can also transfer money between banks. Your old account can stay open or you can close it — the choice is yours.
Do credit unions pay interest on checking accounts?
Some do, and some do not. Credit unions vary widely in what they offer. If you are a member of a credit union, ask them directly about their checking account rates. If you are not a member but interested in joining, you can look up credit unions in your area and call to ask about their rates.
What if I cannot meet the conditions for the interest rate?
If you cannot make the required number of debit card transactions or do not have direct deposit, you will not earn the advertised interest rate. Some banks offer a lower rate with fewer conditions, or you may be better off choosing a different bank or keeping your money in a savings account instead.
Is the interest I earn on a checking account taxable?
Yes. Any interest your bank pays you is considered income, and you must report it on your tax return. Your bank will send you a form called a 1099-INT if you earn more than a certain amount in interest during the year. Even small amounts should be reported.