How do high-interest checking accounts work?

Imagine a checking account with all the standard transactions you’d expect from a checking account, but paying 2, 3 or even 5 percent interest on your balance. Since most checking accounts pay no interest at all, and even the top-paying savings accounts in the country offer less than 1.5 percent, you’d be smart to ask, “What’s the catch?”

These accounts are typically called “high-interest checking accounts”, and though they have a number of strings attached, they aren’t a scam. They’re legitimate accounts, usually offered by smaller banks and credit unions, that simply have very specific requirements for earning the off-the-charts interest rate they advertise.

The most common hoop you’re required to jump through is using your debit card a minimum number of times each month, and we’re not talking about three or four transactions. A typical requirement is 12 debit transactions per statement cycle, and I’ve even seen an account requiring 20. The purchases will also have to be signature, not PIN-based, transactions.

Other typical stipulations include paying at least some number of bills online each statement cycle, setting up direct deposit, and at some banks, opening a credit card with that institution. Signing up for electronic statements is almost always required.

One caution is to check the account’s balance cap. Most high-interest checking accounts specify a maximum balance that can earn the high rate, with anything above that threshold earning zero or near-zero interest. Sometimes the balance cap is an accommodating $10,000 or $20,000. But accounts with caps of just $1,000 or $2,000 won’t be worth your trouble.

If frequently using your debit card is easy for you, a high-interest checking account could significantly boost the interest you earn from your regular banking. Just be warned that the bank will only pay that chart-topping rate in months where you meet every requirement.