Kristin's intro: In this record-low interest rate environment, savers are looking for whatever additional interest earnings they can find. Well, listen up savers because Bankrate.com is out with their annual look at high-yield checking accounts and here with details is Greg McBride, senior financial analyst for Bankrate.com.
Greg, although these are called high-yield checking accounts, they're not your run-of-the-mill checking account. Explain how these accounts work.
Greg: You're right Kristin. Savvy savers are going to use these a lot more like a savings account than they will a checking account. The way these accounts work is by requiring the accountholder to make a certain number of debit card transactions, usually 10 each month, in addition to having direct deposit or bill payment, in order to earn the higher yield. You have to meet those requirements to earn the yield for that given month. Fall short of the mark, and the average rate you'll earn is a more pedestrian 0.08%.
10 debit card transactions per month
Direct deposit or bill payment/automatic withdrawal
Kristin: Of course, interest rates are down across the board over the last year, and I'd imagine that is the case here as well. Talk about the yields you can earn on these accounts, and how that compares to other cash investments.
Greg: The average yield for someone meeting the requirements is 2.05%, which is down from 2.56% last year and 3.3% back in 2010. But this is still head-and-shoulders above other cash investments such as savings accounts and money funds, and your cash is federally insured. However, the yield is limited, most often to the first $25,000 on deposit.
Full-screen Bar Chart:
High-yield checking accounts: 2.05%
Online savings accounts: 1.05%
Money market funds: 0.03%
Kristin: How can savvy savers make the best use of these accounts?
Greg: Ideally, you want your direct deposit to at least offset the money withdrawn via the debit card transactions. Since this is the highest-yielding cash investment you have, this isn't an account you want to be draining cash out of. If at all possible, you want to add cash to up to the point where the high yield is capped.
Kristin: Some welcome good news for the starved savers out there. Thank you, Greg. For more information on the survey and to find a high-yielding account for your spare cash, log onto our website, Bankrate.com. I'm Kristin Arnold.