Interest Checking Account | Definition
/ˈint(ə)rəst ˈCHekiNG əˌkount/An interest | unbanked | currency | altcoins | 529 plan | account | expense | economy | pension | bitcoin | 401(k) | lender | wealth | return | grant | asset | check | fafsa | will | wage | fdic | bank | loan | bond | fund | spac | debt | atm | apr | definitions checking account | fractional share | savings account | underwater loan | withholding tax | underemployment | investment firm | diversification | self-employment | passive income | emergency fund | cryptocurrency | dividend yield | active income | bank transfer | bank product | deposit slip | money market | bank deposit | working poor | forbearance | credit card | stockbroker | fringe loan | underbanked | scholarship | beneficiary | mutual fund | chexsystems | stock split | trust fund | investment | debit card | withdrawal | work study | tax credit | employment | index fund | reconcile | co-signer | net worth | deferment | liability | redlining | black tax | treasurer | reimburse | ownership | tax forms | monetary | definitionsis a type of bank account that pays you interest on your deposits.
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Some interest checking accounts charge service fees unless you meet their daily balance minimum.
What is an Interest Checking Account?
An interest checking account is a type of bank account that pays you interest on your deposits. However, the account may require you to maintain a certain balance or pay a monthly account maintenance fee in exchange for this benefit.
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Interest is typically expressed as an annualized rate known as the "annual percentage yield," or APY for short. It is calculated as a percentage of your balance and is paid out regularly throughout the year.
For example, if you deposit $5,000 into an interest checking account with a 0.20% annual percentage yield, you will have earned $10 in interest above your initial deposit after one year.
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How Does an Interest Checking Account Work?
Opening an account is a simple process. You can open an account online or walk into a bank or credit union. From there, you will provide them with your personal information, choose what type of account you would like then make your first deposit.
Checking accounts are designed to be of convenience to you as a consumer. It allows you the ease of making bill payments, cashing checks, and withdrawing cash when needed. In addition, there is no limit to the number of transactions you can make when depositing or withdrawing funds.
You can choose to have direct deposit, where your money goes directly to your bank on payday, or you can make deposits or withdrawals in person, online, or through an automated teller machine, also known as an ATM.
Interest is rarely earned on regular checking accounts, which is where interest checking accounts come into play. Interest checking accounts provide the same benefits as traditional checking accounts, with the added benefit of earning interest on your account balance at the end of the month.
Both banks and credit unions offer interest checking accounts. However, you must meet specific requirements to be eligible for an account that earns higher interest. Your bank or credit union may require that you make an initial minimum deposit or require you only to have a certain amount of debit transactions per month to qualify.
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