With short term CDs offering around .5% APY, and savings accounts even less, the investor must search hard for even a small increase in return on their money. One easy option that many are taking advantage of, is high yield checking accounts.
High Yield Checking Advantages
In order to attract client’s, some smaller banks are now offering a product known as the “high yield checking account”. The reason they are called high yield is because they generally offer a higher return on your money than traditional checking and savings accounts. In many cases they offer a higher return than even a long term (5 year) certificate of deposit.
Considering the fact that you can access your money anytime with a high yield checking account, and that you pay a penalty to do so with a CD, this is a large advantage.
High Yield Checking Disadvantages
As the higher rate of return on a high yield checking account is a higher cost for the bank that offers it, they generally limit the amount of money you can put into the account. The higher rate of return will apply up to $10,000 for example, and then a significantly lower rate will apply above that amount. Often times however the lower rate of return is still higher than what you can earn on your money with other short term investments.
The rate is generally not guaranteed to remain high, or if it is drops substantially after a period of time (like 365 Days).
There are also normally other conditions that must be met examples of which are:
- A minimum number of debit card transactions (around 10 is usual)
- Accessing online banking a minimum number of times
- Having a minimum number of direct deposits, online bill payments or ACH (automated clearing house) debits
If you don’t meet the conditions during a particular statement cycle, the rate of interest paid to you during that cycle will drop to a lower level (for example, 0.50% instead of the higher rate of 2.50% you are getting for money below the cap).
Local vs. Online, and ATM Considerations
Some banks require you to be local to the area the bank is in and/or work for a specific group of companies for example in order to participate. Many however also allow customers nationwide to participate, but in order to do so you must use online banking. As there will not be any local ATM’s in this instance, you will also pay fees when using ATM machines at other banks. With many offers these fees are reimbursed to you when the conditions for the higher rate of interest are met, so look for that when searching for your account.
Finding a high-yield checking account that suits you
The most popular site for finding which institutions offer high-yield checking accounts close to where you live is www.checkingfinder.com. Entering a zip code such as 10038 for New York City will display the different offers, that you can then sort by distance (the default choice) or rate of return. You can also select up to three of the offers to compare in a table. This summarizes the important information, and also lets you calculate the best option for you.
Here’s an example
Using the zip code of 10038, we can compare the first two offers in the list (ranked according to proximity). This gives a credit union in Jamaica, NY, offering 2.51% APY (annual percentage yield) for deposits up to $10,000 and 0.51% thereafter; and a state bank in Toledo, IA, offering 1.51% APY up to $25,000 and 0.50% APY afterwards. Distance notwithstanding, some quick arithmetic with a calculator will show you that for a balance at the $10,000 level, the Jamaica credit union gives the better deal, whereas at $25,000, the higher yield will come from the Toledo state bank.