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Playing the high interest checking account shuffle

Question: I have about $7000 that is currently at the end of its 15 month Certificate of Deposit life. It was earning what I thought was a paltry 2.18% interest, now to get a similar rate I would have to have a 5 year CD or the 15 month option is 1.11%. I also have some money in a "high interest checking account" (aka "rewards checking"). I have to have a direct deposit and use the debit card at least 10 times a month to get 3.05% interest. Another credit union gives 4.25% with a requirement of 12 debit card uses per month. Assuming I can keep up with the requirements, is this a good deal to switch my CD money into? Am I screwing the businesses I patronize by making them pay me via the bank a high interest rate? Erin, Sulphur, LA

Answer: I know we're getting basically nothing on our safe savings. But it's always striking to see just how little. A fraction over 1% for tying up your money for 15 months and somewhere around 2% for 5 years! So, with the Consumer price Index up 2.1% over the past 12 months you're losing money to inflation.

Okay, to your question. There is nothing wrong with getting a higher interest rate from a credit union (or a bank). It's a business decision by the credit union to offer the high interest checking account (it profitable for them) and a business decision by you to take advantage of it (and you'll make some money, too).

By all means make the switch if you want.

Personally, I'm not a big fan of these high interest checking accounts--at least for me. I don't like the debit card transaction minimum and, if you miss the target, the interest rate on the account drops sharply. I pay attention to my money, but I also need to keep my finances as simple as possible. I mess up otherwise.

It has worked better for me to find a bank with good low-cost products and top-notch service, espeically online. But you will make some extra interest off your savings if you like playing the high interest checking account shuffle and play the game well.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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