Most checking accounts pay zero interest, but some online banks and credit unions offer small rates
The short answer: most banks pay zero interest on checking accounts. Some banks pay a tiny amount—usually between 0.01% and 0.05% per year—but the money you earn is often measured in cents, not dollars. A few online banks and credit unions offer higher rates, typically 0.5% to 2% annually, but these come with conditions like minimum balances or a set number of monthly debit card transactions.
The reason is straightforward: banks use the money in your checking account to lend out at much higher rates. They keep the difference. Savings accounts and money market accounts are designed to pay interest; checking accounts are designed for spending and moving money quickly, not for holding it long-term.
Key Takeaways
- Traditional banks like Chase, Bank of America, and Wells Fargo typically pay 0% interest on checking accounts, regardless of your balance.
- Online banks and credit unions sometimes offer 0.5% to 2% annual interest on checking accounts, but often require a minimum balance or a certain number of debit card transactions per month.
- Even at 2% interest, a $10,000 balance earns only about $200 per year—less than $17 per month.
- If you want your money to earn meaningful interest, a high-yield savings account will pay 4% to 5.5% annually, far more than any checking account.
Why banks stopped paying interest on checking accounts
Banks paid meaningful interest on checking accounts decades ago, but that changed in the 1980s when the Federal Reserve raised interest rates sharply. Banks found they could attract deposits without paying interest, so they stopped. When interest rates fell in the 2000s and stayed low for years, there was no reason for banks to restart the practice.
Today, even with interest rates higher than they were in 2020, most large banks still pay nothing on checking. They have enough customers who keep money in checking accounts out of habit or convenience, so they have no incentive to compete on interest rates. The business model works: you keep your money there, they lend it out, and they pocket the spread.
Which banks and credit unions do pay interest on checking
Online banks are more likely to offer checking account interest than brick-and-mortar banks. Ally Bank, Charles Schwab, and Discover Bank have offered interest-bearing checking accounts, though rates and terms change frequently. Credit unions sometimes offer higher rates than banks, especially if you are a member of a larger credit union network. Your local credit union's website or a call to their member services line will tell you whether they offer interest on checking.
The catch: most accounts that pay interest require you to meet conditions. Common requirements include a minimum balance (often $500 to $2,500), a certain number of debit card transactions per month (typically 10 to 15), or direct deposit. If you do not meet these conditions, the interest rate drops to 0% or the account charges a monthly fee.
Before opening an account for the interest, calculate what you would actually earn. At 1% interest on a $5,000 balance, you earn $50 per year. If the account requires 15 debit card transactions per month and you do not naturally make that many, the hassle is not worth the return.
How checking account interest compares to savings accounts
| Account Type | Typical Interest Rate | Withdrawal Limits | Best For |
|---|---|---|---|
| Traditional checking | 0% | Unlimited | Daily spending and bill pay |
| Interest-bearing checking | 0.01% to 2% | Unlimited (sometimes with conditions) | Checking needs plus modest interest |
| High-yield savings | 4% to 5.5% | Limited (usually 6 per month) | Emergency fund or short-term savings |
| Money market account | 4% to 5.5% | Limited (usually 6 per month) | Savings with check-writing option |
If you have money you do not plan to spend within the next month, a high-yield savings account will earn you far more than any checking account. A $10,000 balance in a high-yield savings account earning 4.5% makes $450 per year. The same balance in a checking account earning 1% makes $100 per year—and most checking accounts earn nothing.
The difference compounds over time. After one year, that $10,000 in a high-yield savings account has grown to $10,450. In a non-interest checking account, it stays at $10,000. Over five years, the gap widens to $2,500 in earnings.
How interest is calculated and paid on checking accounts
Banks calculate interest based on your average daily balance—the total amount in your account each day, averaged across the month. If you have $5,000 on day one and $3,000 on day 15, your average daily balance is $4,000. Interest is calculated on that $4,000, not on the higher or lower amount.
Interest is usually paid monthly or quarterly, meaning it is added to your account balance once per month or once every three months. Some banks compound interest daily, which means you earn interest on the interest you already earned—but at the low rates most checking accounts pay, the difference is negligible. You will see the interest payment listed as a separate line item on your monthly statement, labeled as "interest paid" or "interest earned." The amount is often so small it rounds to a few cents.
What to do if you want your money to earn more
If you keep a large balance in checking because it feels safer than moving money around, consider splitting it. Keep one to two months of expenses in a checking account for bills and emergencies. Move the rest to a high-yield savings account at the same bank or a different one. You can transfer money back to checking in one to three business days if you need it, and in the meantime it earns real interest.
If you like the idea of interest-bearing checking, shop around at online banks and credit unions in your area. Read the fine print carefully: confirm the interest rate, the minimum balance, any transaction requirements, and what happens if you fall below the minimum. Some banks advertise a high rate but only pay it on balances above $25,000.
If you use a traditional bank primarily because of branch access or habit, you do not have to switch everything. Many people keep a checking account at their local bank for deposits and withdrawals, and a high-yield savings account at an online bank for the interest. Both accounts can be linked, so moving money between them takes minutes.
Frequently Asked Questions
Do I lose FDIC protection if I move money to a savings account?
No. Both checking and savings accounts at the same bank are covered by FDIC insurance up to $250,000 combined. If you want full protection for larger amounts, open accounts at different banks—each bank's $250,000 limit is separate.
Can I write checks from a high-yield savings account?
Most high-yield savings accounts do not come with a checkbook. If you need check-writing, look for a money market account instead—they pay similar interest rates and usually include a limited number of checks per month.
What if my bank suddenly stops paying interest on my checking account?
Banks can change interest rates or terms at any time, though they must notify you in advance, usually 30 days. If your rate drops to zero, you can move your money to a different bank. There is no penalty for closing a checking account.
Is the interest I earn on a checking account taxable?
Yes. Any interest you earn, even a few dollars, is considered income and must be reported on your tax return. Your bank will send you a 1099-INT form if you earn $10 or more in interest during the year.
Why do credit unions sometimes pay more interest than banks?
Credit unions are member-owned, not shareholder-owned, so they return profits to members through higher interest rates and lower fees. However, credit unions are smaller and have fewer branches, so access may be limited depending on where you live.