Interest-bearing checking accounts go by several names
An interest-bearing checking account is most commonly called a money market account, a NOW account (Negotiable Order of Withdrawal), or an interest-checking account. Some banks label them as premium checking or rewards checking accounts. The exact name varies by bank, but they all share the same basic feature: you can write checks or use a debit card while earning interest on your balance.
The term you'll encounter most often is money market account, though technically a money market account and an interest-bearing checking account are slightly different products. A money market account typically limits how many checks you can write per month (often three to six), while an interest-bearing checking account lets you write unlimited checks. Both earn interest, but the restrictions differ.
NOW accounts are an older term you may see from banks that have been around for decades. The name comes from the 1980s when federal law first allowed checking accounts to earn interest. You'll still find this term on some bank websites and account disclosure documents, even though most banks have stopped using it in their marketing.
Key Takeaways
- Interest-bearing checking accounts are called money market accounts, NOW accounts, interest-checking accounts, or premium checking accounts depending on the bank.
- Money market accounts typically limit check-writing to three to six per month, while interest-bearing checking accounts allow unlimited checks.
- The interest rate on these accounts is usually lower than savings accounts or money market savings accounts, and often requires a minimum balance.
- Banks may require you to maintain a specific balance to earn the advertised interest rate, and rates change based on federal interest rate decisions.
How interest-bearing checking differs from regular checking
A standard checking account earns no interest on your balance. You deposit money, write checks, use your debit card, and the bank keeps any interest they earn from lending out your deposits. An interest-bearing checking account reverses this: the bank pays you a small percentage of your balance each month.
The trade-off is usually a higher minimum balance requirement. A regular checking account might require $500 to $1,000 to open. An interest-bearing checking account often requires $2,500, $5,000, or even $10,000 to earn the stated interest rate. If your balance drops below that threshold, the bank may pay you a lower rate or no interest at all.
Interest-bearing checking accounts also come with more restrictions. You may face limits on how many times per month you can withdraw money or transfer funds to another account. Some banks charge monthly fees if you don't maintain the minimum balance, which can erase any interest you earn.
What interest rates actually look like on these accounts
Interest rates on interest-bearing checking accounts are typically very low. As of 2024, most banks offer between 0.01% and 0.50% annual percentage yield (APY) on these accounts. A few banks with online-only operations offer rates closer to 4% to 5%, but these are exceptions and often require balances of $25,000 or more.
To understand what this means in real dollars: if you keep $5,000 in an account earning 0.10% APY, you'll earn about $5 per year. If you keep $5,000 in an account earning 4.50% APY, you'll earn about $225 per year. The difference matters more when you have larger balances.
Interest rates change when the Federal Reserve adjusts its benchmark rate. When the Fed raises rates, banks typically raise the rates they pay on checking accounts within weeks or months. When the Fed cuts rates, banks cut their rates faster. This means the rate you see advertised today may be lower next quarter.
Money market accounts versus interest-bearing checking
Money market accounts and interest-bearing checking accounts are often confused because both earn interest and both let you access your money by check or card. The main differences are in how many checks you can write and what the bank calls the product.
A money market account typically allows three to six checks per month and unlimited debit card transactions. An interest-bearing checking account usually allows unlimited checks but may limit other types of withdrawals. Money market accounts sometimes offer slightly higher interest rates to compensate for the check-writing limits, though this varies widely by bank.
Both accounts are covered by FDIC insurance up to $250,000 per depositor per bank, so your money is protected the same way. The choice between them usually comes down to how often you need to write checks and which bank offers the better rate for your situation.
Why banks use different names for the same product
Banks use different names for interest-bearing checking accounts because there is no single legal definition. Federal banking regulations allow banks to create accounts with interest and check-writing privileges, but they don't require a specific name. Each bank decides what to call the product based on how they market it.
Larger traditional banks often call these accounts "money market accounts" or "premium checking" because those names sound familiar to older customers. Newer online banks may call them "interest-bearing checking" or use branded names like "high-yield checking" to emphasize the rate. Credit unions sometimes use their own terminology entirely.
This naming variation can make it harder to compare accounts across banks. When you're shopping for an interest-bearing checking account, look past the name and focus on the actual terms: the interest rate, the minimum balance required, the monthly fee, and any limits on withdrawals or check-writing.
Where to find interest-bearing checking accounts
Online banks and credit unions typically offer the highest interest rates on checking accounts because they have lower overhead costs than brick-and-mortar banks. Traditional banks with physical branches usually offer lower rates but may have other benefits like in-person customer service or access to ATM networks.
When comparing accounts, check the bank's website for the current APY, the minimum balance requirement, and any monthly maintenance fees. Many banks display this information in a "rates and fees" section or in the account disclosure document. Some banks offer different rates depending on your balance tier—for example, 0.10% APY on balances under $10,000 and 0.25% APY on balances over $10,000.
Credit unions sometimes offer better rates to members, especially if you have other accounts or services with them. If you belong to a credit union, ask whether they offer an interest-bearing checking account and what the current rate is.
Frequently Asked Questions
Is a money market account the same as an interest-bearing checking account?
They are similar but not identical. Both earn interest, but money market accounts typically limit check-writing to three to six per month, while interest-bearing checking accounts allow unlimited checks. Some banks use the names interchangeably, so always check the account terms rather than relying on the name alone.
Do I need a minimum balance to earn interest?
Most interest-bearing checking accounts require a minimum balance, often $2,500 to $10,000, to earn the advertised rate. If your balance drops below the minimum, the bank may pay a lower rate or charge a monthly fee. Check your bank's specific terms before opening an account.
How often is interest paid on these accounts?
Interest is typically calculated daily and paid monthly, though some banks pay quarterly. The exact schedule is listed in your account disclosure document. The interest is added directly to your account balance.
Can I write unlimited checks on a money market account?
No. Money market accounts usually limit you to three to six checks per month, though you can make unlimited debit card withdrawals. If you need to write more checks, an interest-bearing checking account with unlimited check-writing may be a better fit.
What happens to my interest rate if the Federal Reserve cuts rates?
Banks typically lower the rates they pay on checking accounts within weeks of a Fed rate cut. Your rate may drop significantly, sometimes to 0.01% or lower. This is why it's worth reviewing your account rate periodically and comparing it to other banks' offers.