5 min read
The pros of interest bearing checking accounts versus savings accounts, CDs and much more
Checking accounts, the mainstay of retail banking the world over, aren’t exactly a new innovation. They have existed all the way since ancient Mesopotamia, Greece, and Rome in one form or the other. Landowners and businessmen would write slips of paper passing one bit of their property or riches to another in exchange for work done or more property. In mercantile Holland of the 1500s, traders used checks to store their money in Dutch accounts instead of risking it on the travel home.
In the US, paper checks were first used by John Hancock, the colonial merchant with the recognizable signature, to transfer large funds at a distance. Because they are made out of paper and had to make the long journey from the payee’s bank to the writer’s bank to fulfill their function, they weren’t used for small purchases. Back then, the writer’s bank was responsible for verifying that the signature was authentic before paying the check, which might work if the writer had a signature like John Hancock, but for the rest of us? Good luck. As they became more commonplace and people used them for lower-value purchases, most banks didn’t bother to verify the signatures and hoped for the best. Check forgery and fraud increased well into the billions of dollars per year in the banking industry.
We now largely use electronic checking and the Automated Clearing House (ACH) to direct debit from a customer’s checking account into a merchant’s business bank account, with the help of a payments processor. Checks are transmitted electronically, making transactions quicker, safer, and easier — no signature test required.
Even with all of those big changes over time, we’re still more likely to hold a checking account over any other account available. But when it comes to growing your money, checking accounts get a bad rep.
Well, there’s a new kid in town — the high yield checking account — which combines the ease of a traditional checking account with high interest rates. Let’s see how it compares to other traditional accounts.
A traditional checking account is a deposit account held at a financial institution that allows withdrawals and deposits. The average interest rate is 0.04%, and as such, they offer no growth. In fact, banks make quite a bit of profit from assessing fees on checking accounts, so they may actually cost you money to use. A checking account makes sense for most of us since they’re super liquid, offer real-time access to our cash, and accept direct deposit of our paychecks and other transfers. High yield checking accounts function just like regular checking accounts, with one exception: you earn interest.
Saving accounts certainly have their place in financial planning. There was a time when you could expect to earn 5–6% interest on the money sitting in your savings account…but those days are long gone. The current average interest rate for savings accounts is 0.06%. With the average inflation rate for the past ten years set at 1.8% it just doesn’t make financial sense!
On top of that, increased regulations limit you to six pre-authorized, automated, or telephone transfers or withdraws during any given month. And if you’re required to have a minimum balance and your account drops below that number? The fees involved may outweigh any potential benefits of having the account at all. The writing is clear: a savings account is not meant for growth!
A money market account is essentially a savings account with some checking features, like paper checks or debit cards. However, they have a very strict limit on transactions per month. There was a time when they offered higher interest rates than regular savings accounts, but these days they’re pretty similar. The average money market account interest rate is about 0.1%, which means that if you save $1,000 per month for one year, at the end of the year you will have earned about $5 growth for a total of around $1,005.
A money market account can make sense for you if you like to keep a high average balance in your account, as they often require that five-figures are held in the account at all times.
A certificate of deposit, or CD, is a federally insured savings account that has a fixed interest rate and fixed date of withdrawal, known as the maturity date. Think of them as a forced savings account: once the money goes in, there’s no way to get to it without paying a fee. Interest rates vary based on the timeframe of the CD, but the average rate for a 1-year CD is 0.4%.
If you deposit $1,000 you will have about $1,022. at the end of the year. A CD makes sense for savers who have a hard time keeping their hands out of the cookie jar, but what they make up for with a tiny bit more interest they give up in access.
Investing is essentially committing your cash with the expectation of getting it back in full plus growth. The most common way that people in the US invest is through the stock market, via their retirement accounts, but you can also invest in funds, bonds, business ventures, real estate, and art. Because there are so many ways to invest it’s hard to circle in on an average rate, but historically the US stock market has returned 10% growth to its diversified investors.
Investing makes sense for everyone but is not advised for short term growth. Additionally, your invested funds are not meant to be accessed for day-to-day expenses, meaning poor liquidity. Can you imagine trading in a few shares of stock in exchange every time you need to pay rent? No way.
While there is no one-size-fits-all financial product, a high yield checking account comes pretty close. Combining all of the access you’re accustomed to with a traditional checking account, plus tons more to love, a high yield checking account like the one offered by OnJuno can make a huge difference in your personal finances. A higher interest rate, no hidden fees, and no minimum balance combine to make a powerful account that can fuel your day-to-day life while padding your savings as well.
12.15% bonus rate is a promotional rate for our Priority Access users. The Priority access users get 2.15% bonus rate up to $50,000 in deposits. The bonus rate drops to 0.50% beyond $50,000. These bonus rates are fixed until April 30, 2021 and will be subjected to evaluation after.
21.65% bonus rate is a promotional rate for our Premium Access users. The Premium access users get 1.65% bonus rate up to $50,000 in deposits. The bonus rate drops to 0.50% beyond $50,000. These bonus rates are fixed until April 30, 2021 and will be subjected to evaluation after.
31.15% bonus rate is a promotional rate for our Basic Access users. The Basic access users get 1.15% bonus rate up to $50,000 in deposits. The bonus rate drops to 0.50% beyond $50,000. These bonus rates are fixed until April 30, 2021 and will be subjected to evaluation after.
The OnJuno Checking Account and Debit Card are part of an offering of CAPITALJ Inc ("OnJuno") and Evolve Bank and Trust, Member FDIC. Your deposits at each Bank are eligible for insurance by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, subject to FDIC rules on aggregation of deposits held in the same insurable capacity. Please visit the FDIC website. Neither OnJuno by CAPITALJ Inc. nor any of its subsidiaries is a Bank.
Interest rate and Annual Percentage Yield comparisons are based on a comparison of OnJuno's Checking Account 2.15% bonus rate to the following checking & savings account APYs reported by Bankrate for 7/29/2020: Marcus Savings Account (0.8% APY), Wealthfront Cash Account (0.35% APY), BofA Adv. Relationship (0.02% APY) and Chase Premier+ (0.01% APY). Actual savings may vary based on rates that are available during the time of your deposit The Annual Percentage Yield (APY) for the Cash Account is as of a specific date and may change at any time, which could decrease or increase actual earnings. The national average is based on rates published at https://www.fdic.gov/regulations/resources/rates/, as of July 29, 2020.
Customers will earn cash back for purchases made at selected merchants. Cash back will be reflected in your OnJuno Account upon a transaction being posted. For example, if you make a purchase of $1000 from a select merchant using your OnJuno Debit card, then you would receive a total of $50 as cash back which would be reflected in your account immediately. In case of a refund or dispute resolution, the cash back would be deduced from the amount transferred. This cash back rewards program is subject to change by OnJuno at any time without notice.
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