Though we have a favorable opinion of promotional offers, reward checking, and shopping around for the best rates, one common misconception among investors and savers alike is that no-fee and interest paying checking accounts provide extra income. In many cases, non-promotional no-fee and interest yielding checking accounts may do more harm than good.
Interest Bearing Checking
With banking fast becoming a highly-competitive industry for your saved dollars, many banks are now promoting checking accounts that pay small amounts of interest on relatively small deposits. For example, your local bank may offer to pay as little as .10% interest on checking accounts with an average daily balance of more than $5000. The idea of earning even some interest on your checking account is promising, but you're best to overlook what are really just gimmicks.
Figure Your Costs
In today's world of high-tech, electronic banking, savers have more options than ever before. They can check their balance whenever they want, move money from savings to checking with the click of a mouse, and manage all their accounts without making a trip to the bank. These money and time saving options are great, and they are exactly the reason it makes little sense to stuff your checking account for a minimal return.
Many interest bearing checking accounts, which require up to $5000 before they yield any return, pay less than even smaller amounts of money stored in a savings account. In addition, since most companies now accept payment by electronic funds transfer through a savings account, having a checking account stuffed with cash makes even less sense.
Unless you write piles of checks each month or don't have an easy way to transfer funds from savings to checking, it makes little sense to take advantage of these offers. 99% of people will be better served – and earn better returns – if they instead keep nearly everything in savings, choosing only to transfer money to checking when it is needed. Sure, you're unlikely to earn 2% per year with a savings account, but rates are soon to rise, and this money-making tactic will help you reap more out of the cash you have lying dormant in the bank.