Ask Money

Playing the high interest checking account shuffle

Chris Farrell Mar 31, 2011

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.

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