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What are the Benefits of an Interest-Bearing Checking Account?

Authored By: MIT FCU

What are the benefits and disadvantages of an interest-bearing checking account? An interest-bearing checking account (or dividend-bearing if banking with a credit union) can be a powerful financial tool to help grow your money. Let’s take a closer look at this popular account.

What is an interest-bearing checking account?

An interest-bearing checking account, or an interest/dividend checking account, is an account that accrues interest at a set rate. Traditional checking accounts do not offer interest as they’re designed to be used to hold funds for everyday expenses. Savings accounts do earn interest/dividends, but accessibility of funds is limited since these accounts are designed to be used for holding long-term savings. An interest checking account blends the best of these two accounts by offering an attractive interest rate, or annual percentage yield (APY), while allowing for accessibility of funds. 

What are the benefits of an interest-bearing checking account? 

There are several key advantages to opening an interest-bearing checking account: 

  • Accessibility of funds. Unlike a savings account, the funds in an interest/dividend checking account can be accessed at any time via debit card, checks, electronic payments and more. 
  • Interest/dividends. Interest/dividends will accrue on the account balance and be paid out periodically.
  • Security. Most dividend checking accounts at credit unions are backed by the National Credit Union Administration (NCUA). 
  • Low or no fees. Maintenance fees on interest checking accounts tend to be nominal. Some financial institutions do not charge any fees on them. 

What are the disadvantages of an interest-bearing checking account? 

Interest-bearing checking accounts do have some disadvantages compared to a traditional checking account. 

For one, you may need to pay a small monthly maintenance fee, which is generally not present for most standard checking accounts. You’ll also need to maintain a minimum account balance to earn on your funds. Some institutions charge a fee for accounts dipping below minimum requirements. Finally, many interest/dividend checking accounts require a minimum amount of monthly debit card requirements which, depending on your spending habits, may be challenging to meet. 

Why would a consumer choose an interest-bearing checking account over a savings account?

As mentioned, interest checking accounts offer the key features of checking accounts and savings accounts. Unlike a savings account which does not allow the account holder to withdraw funds as needed, you can access these funds in your interest checking account at any time. This allows for greater flexibility and makes these accounts an excellent option for an individual seeking to grow their money without tying it up in case they need to withdraw the funds in the near future. 

Ready to start earning more with a dividend-bearing checking account? Get started with an MIT Federal Credit Union Plus or Select Checking Account.



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