Do Checking Interest Rates Pay Better Than Savings Account Interest Rates?

It may seem like an optical illusion, but many checking accounts do in fact pay better interest rates than savings accounts.
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women calculating savings account interest rates

Checking Account Secret Hiding In Plain Sight

A trip to discover the best savings account rates online can be a startling experience. After you compare the best checking account interest rates, that is.

What might well find, if you happen to make that comparison, is that many checking accounts are now paying higher interest to depositors than their savings counterparts.

This goes against years of well-worn conventional wisdom. Savings accounts pay better interest because the bank has more time to lend out your money to other people, and pocket the interest rate differential. The pesky checking account, though, continually experienced in and outflow.

Once, maybe, that was true. But now, something has changed.

Banking Dynamics in a (Temporarily?) Post-Rich Society

The reality that the best checking accounts are paying better or equal interest to the best savings accounts sometimes necessitates, for those who see it, a re-evaluation of what’s going on with banks right now.

One important consideration is that banks need your checking account more than they need your savings account. Part of this is because the checking account is the foundational banking relationship for millions of Americans. And part of this is due to the banks changing their business models.

In today’s economy, banks are making easier money from transactions than from lending. Banks are on track right now to collect approximately $40 billion in overdraft fees during 2009, for instance. When you think about the fact that JPMorgan recently had a blow-out quarter with $2.4 billion in profit, you can see how that $40 billion from overdraft fees would come in handy to pay some bills and, hopefully, some dividends.

The Upside of the Down Economy for People Who Are Smart with Their Money

This economy has some definite benefits for people who are smart with their money. The ability, through a checking account, to get a solid interest rate is highly appealing. Plus, banks have developed comprehensive technology systems, online banking the prime example, that improve the overall banking experience.

Some high interest checking accounts, though, demand high minimum balances. That, too, is part of being smart with your money: meeting that minimum so that you can get that interest rate.

 

Source:

Julianne Pepitone • Bank Overdraft Fees to Total $38.5 Billion • Aug 10, 2009 • CNN Money • http://money.cnn.com/2009/08/10/news/companies/bank_overdraft_fees_Moebs/index.htm

 

About Author
Andrew Freiburghouse joins MoneyRates.com as a contributor specializing in tax and personal finance topics. Over the course of seven years, Andrew Freiburghouse prepared approximately 7,000 tax returns as a junior partner at Los Angeles tax preparation firm Pronto Income Tax of California, Inc. He also represented numerous clients before the Internal Revenue Service, in one case helping to reduce a taxpayer’s IRS debt from $72,000 to $700. Andrew lives in Brooklyn, NY, and is in the process of starting up his own tax practice