Higher APYs Are Back In!
It’s been a while since checking accounts with a decent APY (annual percentage yield) were available, but these days, we’re seeing more and more high-APY checking account products being offered by financial institutions. A solid interest percentage on checking accounts had mostly ghosted since the late ’90s, but they’re starting to make a comeback.
A high-yield checking account is as it sounds: a checking account that offers a much higher APY than other standard checking accounts, which usually don’t offer any interest at all. Some institutions offer APY percentages of at least 2%, but others can offer more, such as 3% to 4% or potentially even higher.
If you’re in the market for the highest-APY checking accounts out there, then there are a couple of factors to keep in mind as you check out the offers. First, brick-and-mortar institutions will generally have the highest-APY checking accounts for their customers and members. That said, as more and more institutions offer their products and services online, they’re beginning to be able to offer higher rates because of the decreases in operational costs. Keep an eye on some of the online banks or credit unions for offering higher rates than you would see otherwise.
Another thing to keep in mind with opening a high-yield checking account online is that, due to their lack of a physical, brick-and-mortar location, the ATM fees (often between $2 and $4) you rack up during the month may affect you negatively. Those things add up.
What Is the Biggest Benefit of Getting a High-APY Checking Account?
When used correctly, a high-yield checking account can work wonders for you. If you have heard of its counterpart, the more common high-yield savings account (where you put in money and don’t touch it for extended periods of time), you’ll be pleased to find out that you have a bit more access and management ability with such a checking account. Notably, it can also often be housed at your current bank or credit union, which means an easier time transferring money between accounts. Much like with its savings account sister, people use these accounts to grow their money with higher interest rates and are usually saving with an end-goal in mind.
Let’s take a look at a theoretical situation, using a high-yield savings account. With the difference between high-yield rates for savings accounts and the national average, the difference in earning potential can be significant. If, for example, you have $5,000 in savings, and the national average is a 0.10% APY, you would only return a $5 increase after the year is over. If, instead, you decided to put that same $5,000 in an account earning 2%, you would be earning $100.
Let’s consider the math with higher interest rates. If you have $10,000 that you want to put into a high-APY checking account, you would earn significantly more during the year if you were earning 3% or even 4%. For example, $400 with $10,000 in a 4% checking account!
Are There Any Downsides? What Should I Be On the Lookout For?
Potentially, there are downsides. It all depends on the financial institution offering the high-yield checking account and what their requirements are for owning an account. There are some high-APY checking accounts that have qualification requirements in order for you to get a specific APY. What does this mean?
It basically means that each financial institution sets its own rules and regulations for the checking account. With a traditional savings account, you generally aim to leave the funds in there and not touch them. With a high-yield checking account, even though it provides what can be a decent return on the money, it doesn’t mean you can treat it like a savings account. There may be some requirements that compel you to use your debit card, such as a 10-transaction-a-month minimum or other stipulations, such as a recurring direct deposit or making a minimum number of withdrawals at the ATM each month. So long as you use the checking account as a checking account, you shouldn’t have any problems.
It’s normal to see minimums needed to deposit when opening savings accounts, but with high-yield checking accounts, this isn’t necessarily true. There are some situations wherein you can incur fees, for instance, if you haven’t been maintaining a sufficient minimum balance. Again, reading the disclosures and fine print to glean this information is your best course of action.
There’s one additional thing to check with high-APY checking accounts: verify that there’s no maximum for the high APY to be valid. You may work very hard to keep $5,000 in your checking account all the time, but if your credit union is only paying a higher APY on the first $1,000, then the remainder is only drawing the standard, lower rate.
What Are the Fees Associated with a High-Yield Checking Account?
One of the nicest things about the higher-APY checking accounts is that there are no to low fees. With that said, banks are for-profit and will try to earn money in other ways. Check out the ATM fees with whichever account you choose to open. Consider finding the overall best option, even if that means the lower interest rate at an institution that doesn’t tack on a list of fees.
Also, double-check if there are any fees added on besides the ATM card usage. Some banks and credit unions may offer special deals to attract new customers or members by emphasizing accounts with high APYs for a limited time, so be sure to do your research in order to find out whether the rate you were quoted is going to last the whole time you hold the account.
Where Is the Best Place to Go to Find High-Yield Checking?
As mentioned, more credit unions and local banks are starting to offer higher-APYs. While that’s a good thing for those who live in proximity, consider the “what ifs?” What if you move away after a few years and the credit union’s geographic location becomes an issue? What if you have to switch banks? If you’re more of the traveling, nomadic type, having access to something across the nation or beyond can make all the difference in the type of accounts you choose to hold.
These are things to take into consideration, even though it might not be a long-term issue for the small, local banks and credit unions, as more and more continue to expand online and offer their products beyond their physical reach.
You can learn more about high-APY checking accounts on the Rivermark Community Credit Union website, and feel free to contact us with any questions you might have.