Most checking accounts pay little to no interest, but some banks offer rates worth considering
Most traditional checking accounts at large banks pay zero interest or less than 0.01% annually. Your money sits in the account and earns nothing. A few banks—mostly online banks and credit unions—offer checking accounts with interest rates between 0.01% and 5% or higher, though the higher rates usually come with conditions like maintaining a minimum balance or setting up direct deposit.
The difference between a non-interest checking account and one that pays interest can add up over time, especially if you keep a large balance. On $10,000, the difference between 0% and 2% is $200 per year. On $1,000, it's $20 per year. The catch is that most interest-bearing checking accounts require you to meet specific requirements to earn that rate, and some rates are tiered—meaning you earn a higher percentage only on balances above a certain threshold.
Key Takeaways
- Most major banks pay 0% interest on checking accounts, while online banks and credit unions may pay between 0.01% and 5% depending on the account and balance.
- Interest-bearing checking accounts often require direct deposit, a minimum balance, or a minimum number of debit card transactions to earn the advertised rate.
- The interest rate on a checking account can change at any time, and banks are not required to notify you in advance of a rate decrease.
- Money market accounts and savings accounts typically pay higher interest than checking accounts, but they limit how often you can withdraw money.
Why most banks don't pay interest on checking accounts
Banks use the money you deposit to make loans and investments. They keep the difference between what they earn on that money and what they pay you as profit. For checking accounts, banks have historically paid nothing because checking accounts are expensive to maintain—they process thousands of transactions per month, require customer service staff, and carry higher fraud risk than savings accounts.
Large banks also don't need to compete for checking account deposits the way smaller banks do. They have enough customers that they can afford to pay zero interest and still attract new account holders. Online banks, by contrast, have lower overhead costs (no physical branches, fewer staff) and use interest as a way to attract customers who might otherwise bank elsewhere.
Which banks and credit unions offer interest on checking
Online banks like Ally, Charles Schwab, and Discover offer checking accounts with interest rates that change based on the Federal Reserve's interest rate decisions. Credit unions often pay higher rates than banks on checking accounts, though the rate varies by credit union and by how much money you have in the account.
Some regional banks and online-only banks offer promotional rates on checking accounts for new customers—sometimes as high as 4% or 5%—but these rates usually last only three to six months and apply only to balances up to a certain amount (often $25,000 or $50,000). After the promotional period ends, the rate drops to a standard rate, which may be 0.01% or lower.
To find current rates, visit the bank's website directly or use a rate comparison tool. Rates change frequently, and a rate that was competitive last month may not be now. Check the fine print for any requirements you must meet to earn the advertised rate.
Conditions you may need to meet to earn interest
Banks that pay interest on checking accounts often attach conditions. Common requirements include:
- Direct deposit of a paycheck or government payment (usually at least $500 per month)
- A minimum balance (often $500 to $25,000)
- A minimum number of debit card transactions per month (typically 10 to 15)
- No more than a certain number of withdrawals per month
- Enrollment in paperless statements
If you don't meet the conditions, the bank may pay a much lower rate—sometimes 0%—or charge a monthly fee. Read the account agreement carefully before opening an account. The interest rate advertised on the bank's homepage may only apply if you meet all the conditions.
How interest is calculated and paid
Banks calculate interest on your average daily balance—the total amount in your account each day, averaged over the month. If you have $1,000 in the account for 15 days and $2,000 for 15 days, your average daily balance is $1,500. The bank then applies the annual interest rate to that average and divides by 12 to get the monthly interest payment.
Interest is usually paid monthly, though some banks pay quarterly or annually. The payment appears as a deposit to your account. If you earn $5 in interest during the month, you'll see a $5 credit in your checking account on the payment date.
Interest rates on checking accounts are variable, meaning the bank can change the rate at any time. Banks are not required to notify you before lowering the rate, though they must notify you before raising fees. Check your account statements or log into your online banking portal regularly to see if the rate has changed.
Comparing checking accounts to savings and money market accounts
Savings accounts and money market accounts typically pay higher interest than checking accounts. A savings account might pay 4% to 5% annually, while a checking account at the same bank pays 0.5% to 2%. The trade-off is that savings and money market accounts limit how often you can withdraw money—usually six withdrawals per month—and some require a higher minimum balance.
If you need to access your money frequently, a checking account is the right choice even if it pays less interest. If you have money you won't need for a few months, a savings account will earn you more. Some people use both: a checking account for everyday spending and a savings account for money they want to set aside.
What to do if your bank pays no interest
If your current bank pays no interest on checking, you have three options: switch to a bank that pays interest, open a second checking account at a bank that pays interest and transfer some money there, or move your savings to a high-yield savings account and keep your checking account where it is.
Switching banks takes about 15 minutes to open a new account online. You can keep your old account open while you set up direct deposit and automatic bill payments at the new bank, then close the old account once everything is moved. Some banks offer cash bonuses for new customers who meet certain conditions (like setting up direct deposit), which can offset any hassle of switching.
Frequently Asked Questions
Can I lose money if my checking account pays interest?
No. Interest is money the bank pays you; you cannot earn negative interest on a checking account. However, if the account has a monthly fee and the interest earned is less than the fee, you will lose money overall. Always check whether the account has fees and whether you will meet the conditions to avoid them.
Is the interest on a checking account taxable?
Yes. Interest earned on a checking account is taxable income. If you earn $50 or more in interest during the year, the bank will send you a 1099-INT form in January, and you must report that income on your tax return. Even if you earn less than $50, the interest is still taxable.
What happens to my interest if I close the account?
You keep the interest you have already earned. If you close the account on the 15th of the month, you will receive interest for the days you had the account open, calculated based on your average daily balance through the closing date.
Why do some checking accounts require direct deposit to earn interest?
Banks use direct deposit as a way to identify customers who have stable income and are less likely to overdraft. Direct deposit also brings in payroll money that the bank can lend out, which helps the bank earn money to pay you interest.
Can I earn interest on multiple checking accounts at the same bank?
Yes, but the interest rate and requirements apply to each account separately. If you open two checking accounts at the same bank, each account earns interest based on its own balance and whether it meets the conditions. Some banks limit how many accounts you can open in a certain time period.