High-yield checking accounts

Question: I notice at checkingfinder.com there are a number of high interest checking accounts available on line at FDIC insured banks. They require some trouble, using debit cards a dozen times a month, etc., but they pay as much as 4% interest. Any hidden drawbacks? Peter, Portland, OR

Answer: A high yield checking account at a bank or credit union pays an above average interest rate on the money in the account, with rates ranging from 0.67% to 6.17%. It can be a good move for anyone that can live comfortably with the restrictions and requirements--the price for getting paid a higher yield.

The drawbacks aren't hidden. They're written into the terms of the contract. The rules vary considerably from considerably from financial institution to financial institution, but almost all impose a certain number of debit card withdrawals a month, require direct deposit, and plenty of automatic bill paying.

Now, since these accounts are offered at federally insured banks and credit unions there isn't any risk that you'll lose money. (And the accounts are usually limited in size, say, $25,000 so you're well below the federal government's $250,000 insurance cap.) The risk is that you won't get paid the promised rate. For instance, according to the High-Yield Checking Study 2010 at bankrate.com if a customer fails to meet the required number of transactions during a statement cycle the monthly yield drops to 0.5% to 0.04%. You also have to be wary of fees which, of couyrse, can also lower your return.

It's instructive to look at the terms of the 58 institutions surveyed by Bankrate for the study. Lots of people find these accounts too much of a hassle to follow. If you're intrigued it really pays to shop around since not all accounts are the same--far from it. But if you find one that fits your banking discipline go ahead and take advantage of an account and pocket that higher rate of interest. .

About the author

Chris Farrell is the economics editor of Marketplace Money.

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