With near-zero interest rates have been the norm for some time, you have probably been conditioned to accept rates on your liquid cash that barely register on your account statements. According to bankrate.com, the average money market account (MMA) rate in the nation was 0.20%, when we checked on August 29, 2018, which would earn $20 on a $10,000 deposit after the first year. You can find better rates by shopping and comparing. If you’re willing to do your banking in the Internet cloud, you can sometimes find MMA rates topping 2.0%.

However, there’s another option that can have even better rates: high-interest checking accounts. These can pay in the 3% to 5% range and are usually found at smaller community banks, credit unions or online banks. It is easy to become captivated by the comparatively alluring rates they offer, but, with all the caveats involved, they are definitely not for everyone.

Money Market Account

Money market accounts are federally insured short-term interest-bearing instruments that generate a variable yield while preserving principal. They tend to deliver interest rates that are higher than those for savings accounts, but they also often call for a higher minimum deposit. Some require a minimum balance to receive the highest rate. The interest rates on MMAs are variable, which means they rise and fall with the interest rate market. 

Most MMAs come with limited check writing and balance transfer privileges. However, federal regulations limit the number of transactions in MMAs to six a month.

High-Interest Checking Account

High-interest checking accounts have all the trappings that normally come with regular checking accounts. Many offer unlimited checks, a debit card, online account management and perks such as rewards points and free overdraft protection. Many will waive the monthly maintenance fee if you maintain a minimum daily balance.

The accounts are usually capped, meaning that the higher interest rate is paid only up to a certain level of money on deposit. Most accounts are capped at $25,000, but the caps can go as low as $1,000. Deposits that exceed the cap earn a much lower rate, as low as 0.1%. 

Which Is Better?

Although high-interest checking accounts offer rates that are significantly higher than those available on savings accounts or MMAs, you have to meet a number of conditions to earn a higher rate. For instance, with many high-interest checking accounts, you must accept direct deposit and electronic statements. Many accounts require 10 transactions; if you only make nine, you lose the higher rate for the statement period. And these accounts sometimes require at least one bill pay or transfer from the account per statement period.

Though none of these requirements are insurmountable, meeting them means that you have to actively manage the account. Most people are used to a more passive approach to account management.

An MMA is generally a better option if you want to park some cash for a short period, or if you don’t want to actively manage your savings. It gives you access to your money when you need it while requiring a minimum amount of effort on your part.

If you’re willing to manage your account actively, a high-interest checking account can generate significantly higher interest earnings than a typical MMA. If in the normal course of a month, you expect to make the required number of debit transactions and have at least one bill you can set up on automatic bill payment, a high-interest checking account shouldn’t be much to manage.

The most difficult aspect is the cap. To optimize your interest rate earnings, you need to make sure that the amount on deposit doesn’t exceed the cap. You will likely need to keep transferring from lower-yielding accounts to ensure you maximize the amount that can be earning the higher yield. For a $10,000 deposit in a high-interest checking account earning 2.5% interest, that is about $240 more in earnings than a typical MMA.

The Bottom Line

High-interest checking accounts and money market accounts can both earn you more in interest than a plain old savings account. The former takes more effort on your part but can result in the highest yields. The latter has the advantage of not needing constant oversight. They still give you access to your money when you need it, like a savings account, but earn a better, though variable, rate of interest. Each is a good reason not to leave all of your hard-earned money sitting in a savings account, where it can barely earn interest at all.