Most checking accounts pay no interest at all
The short answer is no — most checking accounts do not pay interest. Banks use the money you deposit to make loans and investments, and they keep the profit. In return, they offer you a place to store money, a debit card, check-writing, and online access. That is the trade.
Some checking accounts do pay interest, but the rate is almost always very small — often less than 0.01% per year. A few specialty accounts pay higher rates, usually between 0.5% and 2.5%, but they come with conditions: you have to meet a minimum balance, make a certain number of debit card transactions per month, or receive direct deposits. If you do not meet the conditions, the rate drops to zero or near-zero.
The reason most banks do not pay interest on checking accounts is that checking accounts are meant for spending and access, not saving. If you want your money to earn interest, a savings account or money market account is the standard choice, though even those rates have been low for years.
Key Takeaways
- Most major banks pay zero interest on checking accounts, regardless of your balance.
- Some online banks and credit unions offer checking accounts that pay 0.5% to 2.5% interest, but usually only if you meet monthly requirements like direct deposits or debit card transactions.
- Interest paid on checking accounts is taxable income, and you will receive a 1099-INT form from the bank if you earn $10 or more in interest during the year.
- Even high-yield checking accounts pay less than high-yield savings accounts at the same bank, so checking should be for spending money, not long-term savings.
Which banks and credit unions pay interest on checking
Online banks are more likely to offer interest-bearing checking accounts than traditional brick-and-mortar banks. Banks like Ally, Charles Schwab, and Discover have offered checking accounts with rates between 0.5% and 2.5% in recent years, though rates change frequently and depend on the current interest rate environment set by the Federal Reserve.
Credit unions also tend to pay interest on checking accounts more often than traditional banks. The rate varies by credit union, and some offer higher rates to members who meet specific conditions — for example, making 15 or more debit card transactions per month, or receiving at least one direct deposit.
Traditional banks like Chase, Bank of America, and Wells Fargo typically pay zero interest on standard checking accounts. Some offer premium checking accounts with higher interest rates, but these usually require very large minimum balances — often $25,000 or more — and are aimed at wealthy customers.
The best way to find out what your current bank pays is to log into your online account or call customer service. The interest rate and any conditions are listed in the account disclosure document, which you can also request in writing.
How to calculate what interest you would actually earn
Interest on checking accounts is calculated on your average daily balance — the total amount of money in the 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 balance. If the rate is 1% per year and your average daily balance is $1,500, you would earn about $15 per year, or roughly $1.25 per month. If the rate is 0.01% — which is common at large banks — you would earn about $0.15 per year.
Here is a concrete example: suppose you have a checking account that pays 0.5% annual interest, and you keep an average balance of $5,000. Over one year, you would earn about $25 in interest. That same $5,000 in a high-yield savings account paying 4% would earn $200 per year. This is why checking accounts are not a good place to store money you are not spending.
Conditions that come with interest-bearing checking accounts
Banks that do pay interest on checking accounts almost always attach conditions. If you do not meet them, the rate drops to zero or the account converts to a non-interest-bearing account. The most common conditions are:
- A minimum balance — often $500 to $2,500, sometimes much higher.
- A minimum number of debit card transactions per month — typically 10 to 15.
- At least one direct deposit per month.
- No more than a certain number of withdrawals per month (though this is less common for checking than for savings).
- Maintaining a linked savings account or other product with the bank.
If you miss even one condition in a given month, many banks will drop the interest rate to zero for that month. Some banks are more lenient and only reduce the rate if you miss conditions for two or three months in a row. Read the account disclosure carefully to understand the exact rules.
This is why an interest-bearing checking account only makes sense if you actually use the account for spending and can reliably meet the conditions. If you keep money in checking that you do not plan to spend, a savings account is a better choice because it has no transaction requirements and usually pays a higher rate.
How interest is reported to the IRS
Interest earned on a checking account is taxable income. If you earn $10 or more in interest during the calendar year, the bank will send you a Form 1099-INT by January 31 of the following year. You must report this income on your tax return.
If you earn less than $10, the bank does not have to send you a form, but you are still required to report the interest on your tax return if you file one. Keep your own records of interest earned if the amount is small.
The interest is taxed at your ordinary income tax rate, which means it is added to your other income and taxed according to your tax bracket. For most people, the amount of interest earned on a checking account is so small that it makes almost no difference to their tax bill.
Checking versus savings accounts for earning interest
If your goal is to earn interest on money you are not spending right now, a savings account or money market account is almost always a better choice than a checking account. Here is why:
- Savings accounts typically pay higher interest rates than checking accounts at the same bank.
- Savings accounts have no transaction requirements — you do not have to make debit card purchases or receive direct deposits.
- You can keep your spending money in checking and your savings in a separate account, which makes it easier to track how much you have available to spend.
- High-yield savings accounts at online banks currently pay 4% to 5% annually, compared to 0.5% to 2.5% for interest-bearing checking accounts.
The only reason to choose an interest-bearing checking account over a savings account is if you need to write checks or use a debit card frequently and want to earn some interest on the balance you keep there for spending. In that case, an account that pays 0.5% to 1% is better than one that pays nothing, even if it is not as good as a savings account.
What changed with interest rates in recent years
For most of the 2010s, interest rates on all bank accounts were extremely low — often 0.01% or less. Starting in 2022, the Federal Reserve began raising interest rates to fight inflation, and banks responded by offering higher rates on savings and checking accounts. Some online banks began offering checking accounts with rates above 2%, which was unusual.
Interest rates change over time based on Federal Reserve policy and competition between banks. If you are considering an account because of its interest rate, check the current rate before you open it, because the rate you see today may not be the rate you earn next year. Banks can lower rates at any time, though they usually give customers notice.
Frequently Asked Questions
Can I move money between checking and savings to earn more interest?
Yes, you can move money between accounts as often as you want. However, if you are moving money to a savings account just to earn a higher interest rate, keep in mind that the difference is usually small. A checking account paying 0.5% versus a savings account paying 4% makes a real difference only if you have a large balance you plan to keep there for months or years.
What if my bank stops paying interest on my checking account?
Banks can lower or eliminate interest rates at any time. They usually give customers 30 days' notice. If your bank stops paying interest, you can switch to a different bank or move the money to a savings account. There is no penalty for closing a checking account.
Do I have to pay taxes on checking account interest?
Yes, interest earned on a checking account is taxable income. If you earn $10 or more in a calendar year, the bank sends you a Form 1099-INT, and you report it on your tax return. The interest is taxed at your ordinary income tax rate.
Is it worth opening an account just for the interest?
Probably not, unless you have a large balance and plan to keep it in checking anyway. The interest earned on most checking accounts is small — even $10,000 earning 1% per year is only $100. If you have money you do not plan to spend, a high-yield savings account is a better choice.
Can I get interest on a joint checking account?
Yes, joint accounts earn interest the same way individual accounts do. The interest is calculated on the total balance in the account, regardless of how many owners it has. Both owners are responsible for reporting the interest on their tax returns if required.