Can Checking Accounts Earn Dividends?

While common knowledge states that a key difference between a savings account and a checking account is that a savings account earns interest or dividends, while a checking account does not, there are actually a number of checking accounts that can earn you money! (As a reminder, your deposits at a credit union earn dividends, rather than interest, as  credit unions are not for profit and dividends are distributed among credit union members.)

So, how do dividend-earning checking accounts work? 

A  dividend-earning checking account often requires a minimum balance in order to begin earning dividends, or may require you to receive a specified amount in direct deposits each month. The account then pays dividends on the balance, typically monthly.   

Like any other checking account, your dividend-earning checking account will be able to make everyday transactions, such as debit card purchases and ATM withdrawals, and write checks, all while earning dividends on your balance. 

You may be wondering, why have a savings account if you can have a dividend-earning checking account?   

Well, for starters, most savings accounts will earn you more dividends than the majority of dividend-earning checking accounts. Additionally, the purpose of a savings account is just that – saving – whether it’s for a future purpose or an unexpected expense.  

You’ll also need to jump through more hoops to earn dividends on your checking account, such as having a high minimum average balance, and may incur fees if you do not meet that balance. But, if you can keep up with those requirements, a dividend-earning checking account can be a great option.

What about a money market account?

Money market accounts typically come with a competitive APY (Annual Percentage Yield) and are sort of a hybrid between a savings and checking account. Many money market accounts will allow you to write checks, and you can also withdraw money from the account, although the number of transactions per month may be limited. However, a money market account may require an even higher balance requirement than a dividend-earning checking account to earn a high APY.

What should I open?

At Service Credit Union, we’re proud to offer a variety of savings and checking options to suit your needs, including our Dividend Checking account, which earns you .15% APY in dividends on the first penny, and has no fees if you maintain a $1,500 minimum daily balance. 

Depending on your financial situation, you may want to have a savings account, money market and dividend-earning checking. Look at your spending and saving and determine what makes sense for you. We’re always here to help!