Checking and Savings Accounts That Pay You Dividends

Banks and credit unions offer several ways for you to earn interest.

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You don't have to put your money in the stock market to earn dividends. There are several kinds of bank accounts where you can put your money and it will return interest; they vary by liquidity (how easily you can get your money) and rate of return (how much you earn).

Dividends or Interest?

Interest payments are the amount the bank pays you to hold your money in an account there. The interest rate you can earn varies by bank as well as by the account you choose.

Dividends on a bank account are basically the same as interest payments; the term is most often used at credit unions, as opposed to banks. As credit unions are customer-owned institutions, they sometimes use different terms. For example, a savings account at a credit union may be known as a "share account" because it represents your share of ownership in the credit union.

Interest-Bearing Savings Accounts

Savings accounts pay interest income, but your access to the funds is limited. Before April 2020, you were generally limited to six withdrawals or transfers per month under Federal Regulation D, except for ATM transactions or withdrawals with a teller at the bank. The Federal Reserve Board has suspended the six-withdrawal limit rule, but banks are still permitted to enforce it, and may charge fees for withdrawals that exceed it. Keep these limits in mind when deciding where to put your money.

Dividend Checking Accounts

Unlike savings accounts, with dividend or interest checking accounts there are virtually no limits to how often you can spend from the account. These accounts can be found at traditional banks, and they're especially easy to find at credit unions.

Some checking accounts, known as reward checking, pay extremely high rates, but they require that you meet certain criteria to earn interest. For example, you might have to use your debit card at least 10 times per month and sign up for online statements. If you don't meet the criteria, you won't earn interest that month.

Other banks—especially online banks—pay interest at competitive rates in addition to making it easy to qualify for those earnings. Online banks often charge no monthly maintenance fees and require no minimum balance to get started.

Certificates of Deposit

Certificates of deposit (CDs) offer a premium interest rate in exchange for requiring the funds to be left alone for a specified time, after which the note matures and the money can be withdrawn along with the interest earned. The interest rate you can get with a CD is often higher than what you can get with other banking products but is offset by the limited liquidity. Also, if you withdraw your money before the end of the term, you may be penalized with fees.

CD terms can range from a couple of months to many years, and the interest rate often correlates to the term—the longer the term, the higher the rate.

Money Market Accounts

Money market accounts pay a high level of interest, often paying as much or more than savings accounts. What's more, they frequently offer check-writing or debit card features as well, making them a sort of checking-savings hybrid. The catch with money market accounts is that there are many restrictions; you may be limited to six withdrawals or transfers (except for in-person transactions) each month, and you'll probably have to stick to a minimum deposit requirement, too—sometimes in the tens of thousands of dollars.

Linked Accounts

Linking your checking account to an interest-bearing savings account is an option if you can't get a checking account that pays interest. It can be done within your existing bank, where transfers between checking and savings are more or less instant, or you can link to an external account.

Online bank accounts often pay higher interest than brick-and-mortar banks, so you can choose to open an online-only account and link that account to your everyday checking account. Transfers usually take three business days or so, so you’ll need to plan ahead just a bit to make sure you have enough in checking to cover any bills or checks.

Although funds might show up in your account shortly after you request a transfer, they might not be available for withdrawal or spending right away. Make sure you get familiar with the timing, so you don’t miss any important payments.

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  1. Federal Register. “Regulation D: Reserve Requirements of Depository Institutions.”

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