Unlocking The Secrets of How a High-Yield Checking Account Works
Curious about high-yield checking accounts? Uncover the secrets behind these powerful financial tools in our comprehensive guide. Learn how these accounts work, why banks offer them, and most importantly, how you can maximize your earnings. We'll reveal the hidden benefits, potential pitfalls, and insider tips to help you decide if a high-yield checking account is right for you.
This blog is for informational purposes only and not an offer of any specific account or service. For current details on our checking accounts, including terms and fees, please visit midflorida.com or speak with a representative. Account features and conditions may change. Membership eligibility required.
High-yield checking accounts promise big returns on your everyday money.
You've probably seen the ads: earn interest on your checking account balance! But there’s more to these accounts than meets the eye.
Understanding how they work is key to maximizing your earnings. Let’s dive in.
Start your application with MIDFLORIDA Credit Union.
A high-yield checking account is a checking account
This might seem obvious, but it’s still important to understand. When you open up a high-yield checking account, you’ll be able to do everything with it you can do with a regular checking account, such as:
- Make deposits
- Make withdrawals
- Write paper checks
- Make payments with a debit card
- Transfer money to and from other checking and savings accounts
A high-yield checking account pays interest if you meet the conditions
Where a high-yield checking account differs from regular checking accounts, of course, is that it pays a higher rate of interest.
How much interest you can earn varies by financial institution, but the average interest rate of a high-yield checking account is around 3.00% APY1. That’s exponentially higher than the interest rate of a regular savings account!
However, you don’t just earn the interest automatically. Typically, you have to meet certain conditions over the course of a month.
To avoid a monthly maintenance fee on the High-Yield Checking account at MIDFLORIDA Credit Union, for instance, you have to:
- Enroll in MIDFLORIDA’s online banking service
- Make 10 purchases each month with your debit card
- Keep a daily balance of over $1,500
- Direct deposit at least $1,000 cumulative each month in your account
Why do financial institutions insist on meeting these conditions before giving you interest? To get the answer to that, you need to know the answer to another question…
Why do financial institutions offer high-yield checking accounts?
At first glance, financial institutions paying interest on checking accounts doesn’t make much sense.
Why would they give away money, especially when people still use regular checking accounts? What are credit unions and banks getting out of offering these accounts?
- Attract members: High-yield checking accounts are a powerful tool for financial institutions. These accounts make it easier to attract new members, as people are often reluctant to switch banks. Once members open a high-yield account, they're more likely to stay with the institution long-term.
- Keeps members engaged: To earn the highest interest rates, members must often meet specific conditions, such as making a certain number of debit card purchases or direct deposits. While these requirements benefit the customer by encouraging responsible financial habits, they also increase customer engagement with the bank or credit union. This means members are more likely to notice and act on promotions, deepening their relationship with the financial institution.
- Encourage members to keep banking: Additionally, many high-yield checking accounts require members to maintain a minimum balance. This incentivizes members to keep more money in their accounts, which can increase the bank's overall deposit base.
Is a high-yield checking account worth it?
Now that you know how a high-yield checking account works, you might be wondering if it’s worth getting one. The answer is definitely yes, but you have to follow a few guidelines.
1. Review the terms and conditions
Obviously, this should include the conditions you have to meet to earn the interest rate, but you’ll also want to know about:
When you know the terms and conditions of your high-yield checking account, you’ll have a better understanding of what you’ll need to do to get the interest every month.
You’ll also know how to avoid unnecessary fees, and you can also calculate how much money you’ll get in interest every month.
2. Monitor your high-yield checking account daily
This will help ensure that your account balance is always above the minimum, and let you transfer money to bolster your balance before it sinks below the minimum
3. Adjust your expectations
Too many people expect to make way more money off their high-yield checking account than they actually do, and as a result they are disappointed.
Try to calculate the amount of interest you’ll receive each month and talk to an account manager if you need help.
If you can’t do that, at least try to calculate how much you’ll earn from your minimum balance and use it as a baseline.
Take advantage of a MIDFLORIDA High-Yield Checking account
Knowing how a bank account works is the first step to getting the most out of it, and high-yield checking accounts are no exception.
When you know how a high-yield checking account works, you’ll be able to understand what the benefits are to you and why financial institutions offer them. You’ll also have an idea how to get the most out of these accounts.
If you’d like to see what a high-yield checking account can do for you, talk to any teller or account manager at MIDFLORIDA today. They’ll help you open a new account and answer any questions you might have.
Even better, if you’re a new member and you open a MIDFLORIDA Free Checking account, you can get a $200 bonus2 if you meet the conditions.
Regardless of what account you open, though, you’ll get the personal touch that MIDFLORIDA offers all its members, and what so many big banks seem to lack.
Further Reading Recommendations
1 Forbes.com 8/13/24
2 Offer valid as of August 1, 2024, and may be canceled at any time. MIDFLORIDA Credit Union membership and eligibility requirements apply. See associate for details regarding fees and terms. To qualify for the $200 incentive, you must open a new Free Checking account with direct deposit ($500 cumulative which must post within 60 days of account opening; cash transfer app deposits do not qualify); accept and open online banking, eStatement, and a debit card; and complete 5 debit card purchase transactions which must post in one calendar month (to be completed within the first 60 days of account opening). No dividends are paid on Free Checking. Annual Percentage Yield is 0.00%. Limit one incentive per Social Security number. Past checking account holders and previous recipients of checking account incentives are ineligible. The incentive will be deposited to new Free Checking account after the qualifications have been met and will be reported to the IRS. Minimum to open Free Checking is $50.