What Is a Dividend Bearing Checking Account?
Understand how dividend bearing checking accounts let your balance earn while providing essential everyday banking features.
A checking account is a fundamental financial tool for managing daily transactions, allowing individuals to easily access funds for purchases, bill payments, and cash withdrawals. While traditional checking accounts primarily serve as transactional hubs, some accounts offer the additional benefit of earning returns on the deposited balance.
Defining Dividend Bearing Checking Accounts
A dividend bearing checking account functions similarly to a standard checking account but earns a return on the money held within it. This return is often called a “dividend” by credit unions, while banks use “interest” or “interest-bearing.” Regardless of the terminology, the core concept is consistent: these accounts provide earnings on your balance. They combine the accessibility of a checking account, allowing for debit card use, check writing, and bill pay, with the earning potential usually associated with savings accounts.
Understanding Dividend Calculation
Earnings on dividend-bearing checking accounts are calculated using an Annual Percentage Yield (APY), which reflects the effective annual rate of return, taking into account compounding. Financial institutions commonly calculate these earnings based on the account’s average daily balance or a daily balance method. Some accounts may also feature tiered rates, meaning different portions of the balance earn different rates. For example, a lower balance might earn one APY, while a higher balance qualifies for a greater APY. These dividends are usually compounded daily and credited to the account on a monthly basis.
Common Eligibility Conditions
To qualify for advertised dividend rates, account holders typically need to meet specific conditions, such as maintaining a minimum average daily balance, which often ranges from a few hundred to a few thousand dollars, or having a minimum initial deposit. Many accounts also mandate direct deposits, often requiring a certain amount or frequency, such as at least one direct deposit per month. Another frequent condition involves a specified number of debit card transactions within a statement cycle. Account holders may also need to enroll in online banking and agree to receive electronic statements. Failing to satisfy these conditions usually results in a lower dividend rate or no dividend, and may lead to monthly service fees.
Typical Account Features
Beyond their dividend-earning capability, these checking accounts offer standard features for daily money management. These include online and mobile banking platforms, bill pay services, debit card use, check writing, and ATM access. Many accounts offer overdraft protection, often linking to a savings account or line of credit. Potential fees include monthly maintenance fees, which can often be waived by meeting specific criteria like minimum balances or direct deposit requirements. Overdraft fees, typically ranging from $27 to $35 per item, and ATM fees for out-of-network transactions, averaging $3 to $5, are also common. Deposits in these accounts are generally insured by the Federal Deposit Insurance Corporation (FDIC) for banks, or the National Credit Union Administration (NCUA) for credit unions, up to $250,000 per depositor, per institution.