Think stashing money in a savings account is a waste of money?
- The average savings account interest rate in 2018 was 0.06% APY (and has been since 2013).
- The inflation rate in 2018 was 1.9%.
- The savings accounts with the highest interest rates usually max out at 2% APY.
So, yes, you have a point. But don’t give up on checking accounts quite yet. This article reviews 9 nationally available high-yield checking accounts that will change your mind about checking accounts. First, a brief primer on high-yield rewards checking accounts.
What Are High-Yield Rewards Checking Accounts?
High-yield rewards checking accounts are a less known investment that can earn you up to 5% returns on your cash. These accounts offer higher returns than savings accounts, CDs, and money market accounts.
What’s the catch?
High returns are only paid on a certain amount: called the balance cap. Balance caps vary by bank or credit union. There are also certain requirements account holders must meet, such as opting for electronic statements, having a direct deposit, and making a minimum of 10 (or more) debit transactions a month.
The secret is to stay as close to balance cap as possible to maximize the yield of your savings and ensure you meet the account requirements. Any month you do not meet the minimum requirements, you will not receive the higher yields.
How To Use High-Yield Rewards Checking Accounts
High-yield rewards checking accounts provide better returns than savings accounts, regular checking accounts, and CDs. True. There are some hoops you have to jump through and the high yield is usually restricted to $5k to $25k. Still, they generate 2x to 5x the APY of high-interest savings accounts, so the extra effort is well worth it. Although high-yield rewards checking accounts are not an alternative to a diversified retirement fund, they do provide important advantages that make them a valuable tool in anybody’s portfolio. Here’s why.
High-Yield Checking Accounts, Emergency Funds, And Cash Drag
Financial advisors agree cash is a terrible investment. Once you calculate inflation, taxes, and the opportunity cost, you are losing money by holding cash in your investment portfolio. However, financial advisors also recommend having an emergency fund with enough cash to cover three to six months worth of household expenses. For the average American household, that means saving anywhere between $13,000 and $26,000 in cash, which is a serious chunk of change for most of us.
High-interest checking accounts provide a perfect solution for the cash drag vs. emergency fund dilemma. By depositing your emergency fund in a high-yield checking account, you have quick access to your savings (the whole point of an emergency fund) while still earning a solid 2.5% to 5% APY. Unlike stocks and bonds, there is no risk involved because your deposits are federally insured up to $250,000.
When done correctly, the savings you put in a high-interest checking account can balance, instead of dragging, your investment portfolio.
Take 2015 for example. It was a bad one for my retirement fund. It wasn’t just me. Around 70% of investors lost money in the worst year for the stock market since 2008. My fund is mainly invested in stocks (90%) and bonds (10%) and generated a negative yield of -2.5%.
On the other hand, my emergency fund, which I have parked in a couple of high-yield checking accounts, generated a tidy 3.5% APY.
Follow these guidelines to make the most out of your high-yield checking account
- Only open as many high-yield checking accounts as you can realistically manage. Consider two or three as a reasonable limit. Remember you need to make 10 or more debit transactions a month and set up automatic payment/direct deposits. The time involved in managing these accounts adds up fast.
- Make sure one of your checking accounts allows you to transfer funds as direct deposits for free. If not, you may struggle to meet the “direct deposit” requirement. Some financial institutions accept PayPal and other money transfer services as a direct deposit.
- Never spend money just to meet the minimum requirements. It will negate the interest you are making from the high-yield accounts.
- Stay as close as possible to the balance cap to maximize your interest returns.
Banks — Best High-Yield Rewards Checking Accounts For 2019
This list breaks down the top credit union and bank accounts offered nationwide with the highest yields.
Founded in 1961, La Capitol’s first office started in the basement of the state capitol building in Baton Rouge, LA. The rates and perks of this checking account are great. If you live in the area you should consider joining.
Consumers Credit Union is based in Waukegan, Illinois, and offers a tiered APY on its Free Rewards Checking account.
- Customers who meet the necessary requirements receive a 3.09% APY. That is, they must make 12 monthly debit transactions, opt for e-statements, and have either one direct deposit, one automatic debit or Bill pay.
- Customers who meet the basic requirements and spend $500 in credit union VISA purchases can get a 3.59% APY with a $15,000 balance cap.
- Customers who meet the basic requirements and spend $1,000 or more on VISA purchases receive a 4.59% APY with a balance cap of $20,000.
The Great Lakes Credit Union is based in North Chicago and offers a 3% APY on its Ultimate Checking account with a $10,000 balance cap. To qualify, customers must make a minimum of 10 debit card purchases per month ($100 or more), have a $500 direct deposit, pay at least one bill per month through Bill pay or log into the credit union’s mobile banking platform once per month. ATM fees are also refunded when minimum requirements are satisfied. On months where they are not, customers receive no interest and must pay $5 per statement cycle.
Blue Federal Credit Union offers high interest rates with no minimum amount. The high rates only apply to the first $15,000, but it’s still a hard to beat deal.
The Lake of Michigan Credit Union is based in Grand Rapids, Michigan, and offers a 3% APY on the first $15,000 you deposit in its Max Checking account. Didn’t I tell you about great checking accounts and Michigan? The minimum requirements to receive the high yield are 10 monthly debit transactions, logging into the account at least four times a month, a direct deposit (a PayPal deposit will work), and electronic statements. Anything above the $15k balance cap does not receive interest. The same applies to months customers don’t meet minimum requirements.
CapEd Federal Credit Union is based in Meridian, Idaho, and offers a 2.5% APY on its High Yield Checking account up to $10,000. Anything above $10k receives a 0.2% APY. The requirements are 12 monthly debit transactions, either a direct deposit or an automatic payment per month, and e-statements. Customers that satisfy minimum requirements also receive up to $25 in ATM fee refunds.