Let me ask you a few questions to see if you qualify for free money. Do you have a checking account now? Is your paycheck directly deposited into that account every month? Do you use your debit card to make purchases? If you answered yes to all those questions, then ask this one:

Does your checking account pay you up to 5% interest?

If you have a checking account and aren’t earning interest on that money, you are missing out on an opportunity to make money without really working for it. If you don’t have a checking account yet then it’s very easy to sign up for one and get in on this sweet, free money action.

It’s not magic, it’s just a “High Yield Checking Account”. All you have to do is deposit money into a high yield or rewards checking account, follow the bank’s rules (usually a direct deposit and a minimum number of debit card transactions per month), and earn up to 5% interest. This could be a few bucks or literally over $1,000 a year, depending on how much you have in your account.

Segue #1: You could obviously take the interest you earn from this account and invest it, but let’s pretend you are already diligently maxing out your Roth IRA and are already meeting your planned retirement saving goals. In this case, you have an extra $1,000 of spending money. Personally, I’d be tempted with a new 50″ HDTV/Blu-ray package if I didn’t already have my HDTV/PS3 combo. Since I’m set with my TV, I think I’d finally play enough rounds of golf to shoot under 100 for the first time in my life. Right now I only play about three or four times a year, and when I do I look like these guys. What would you do with an extra $1,000 a year of spending money? Let me know in the comments below.

Let’s see how this really works. First, you can find your High Yield or Rewards checking account by clicking this link and finding some of your local or internet options. Since we all don’t live in the same place, I’ll use the Danversbank Rewards Checking Account as an example. This account has been around for over three years, and is available to everyone nationwide. You will get 4.01% APY on your money if you meet the following monthly requirements:

  • perform at least 12 debit card transactions (excluding ATMs);
  • receive their monthly statement electronically;
  • access Online Banking, and
  • sign up for direct deposit or receive a recurring ACH.

The 4.01% APY is available for up to $25,000, and for every dollar you have above $25,000, they will pay you 0.25% interest. That means if you hold a $25,000 balance in your checking account, they will pay you $1,002.50 in interest for the year. If you hold a much lower balance in your checking account, then your interest earned will be much lower. For example, if you have about $1,000 in there every month, you will only earn $40 of interest in the year. However, it’s still $40 you didn’t have before.

I do not recommend that everyone move their bank account here. You have to evaluate if the time it takes to move accounts is worth it, and also see if the rewards you get here diminish rewards from another account. It’s important to know how all your financial products work, and know when to use them at the right time.

For example, I get 5% cash back on gas, groceries, and pharmacy purchases with my American Express Blue card. If I were to stop using my AMEX Blue for purchases and started using my Savings Account Debit Card (because remember, you have to make 12 purchases on the debit card each month), I would miss out on these huge savings at the grocery store or gas station for those 12 purchases. In my case, I’d make sure I made my 12 debit card transactions on purchases outside of my 5% categories. It is also important to note that this specific Danversbank account gives you one rewards point for every two dollars you spend. Based on their rewards program, this amounts to about 0.5% cash back. That is a very small benefit, but it is important to have all the information.

Finally, you really have to compare this to other offers that might be available to you. If you are someone who generally keeps a small balance in your checking account (around $2,000 or less) then you would probably be better off getting an account with an account opening bonus. For example, Chase almost always has an offer for a cash bonus when you open an account. Right now, it is $100. If you aren’t going to have a large balance in the account, you will get more money with this offer than with a high yield interest checking account.

Segue #2: These sign up bonuses are great, but I would imagine they won’t be around for long. I signed up for a Chase Sapphire Credit Card because they gave me 10,000 points (worth $100) after my first purchase. I took the bonus and hardly ever use the card. Then they offered me $125 to open a checking account along with the credit card. I happily did so and now have $225 of Chase’s money without really providing them with any income. If more people start using these deals to their advantage, you might see the offers go away. Until then, feel free to play within the rules and get as much bonus money as possible.

I have digressed in to a whole new topic about bonus money on accounts, which probably deserves its own entry, so I am putting my foot down and stopping here. To summarize, if you hold a large balance in your checking account (at least $3,000 or more), you should definitely consider a high yield checking account. If you don’t carry a large balance, you may want to look into getting a sign-up bonus on a new checking account.

Leave a comment below if you’ve found a good checking account that pays high interest or gives a bonus.