Unlike savings accounts, checking accounts are designed for everyday money management and generally don’t pay interest on the money sitting in the account. However, there are some exceptions to this rule, including dividend checking accounts.
Dividend checking accounts are essentially the same thing as interest or interest-bearing checking accounts. The only difference is that they are offered by credit unions rather than banks. While banks pay interest, credit unions are not for profit and generally pay dividends, which are the credit union’s way of sharing their profits with members.
Both interest and dividend checking accounts allow you to earn a return on your everyday checking balance while also enjoying the flexibility and features of a checking account — like checks, a debit card, and an unlimited number of withdrawals per month.
However, these accounts generally come with more stipulations than regular checking accounts. For example, you may need to maintain a certain balance or make a certain minimum amount of monthly debit card transactions in order to earn the advertised rate or avoid paying a monthly fee (which could negate the benefit of these accounts).
Here’s a look at whether dividend checking accounts are worth it.
What Is a Dividend Checking Account?
A dividend checking account is a type of checking account that pays interest on the balance held within the account. The term “dividend” is often used by credit unions, whereas banks might refer to similar accounts as interest-bearing or high-yield checking accounts.
The main appeal of these accounts is their ability to generate interest on funds that would otherwise sit idle or earn a nominal return. This allows account holders to maximize their earnings while maintaining easy access to their money for daily transactions.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.20% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
How Dividend Checking Accounts Work
Dividend-bearing checking accounts work in the same way as regular checking accounts but with the added benefit of earning interest on the account balance. The interest is typically calculated as a percentage of the balance and automatically credited to the account monthly. The account may require you to meet a minimum balance threshold or receive a specified amount in direct deposits each month to earn interest.
The interest rate offered by a dividend checking account can vary significantly between financial institutions. It’s often higher than what is provided by standard savings accounts, though it may not be as high as what you could earn in a high-yield savings account.
You can use dividend checking accounts for everyday transactions, including writing checks, using a debit card to make purchases and get cash, and setting up direct deposits and automatic payments. Like other checking accounts, your money is typically federally insured up to $250,000 per depositor; co-owners of joint accounts at the same institution are usually each insured up to $250,000.
Key Features of Dividend Checking Accounts
Dividend checking accounts come with several features designed to provide added value to account holders. Here’s a look at some of the benefits of these accounts.
Higher Interest Earnings
You can typically earn a significantly higher interest rate compared to standard checking accounts. The rates may be tiered, with higher balances earning higher interest rates. This makes dividend checking accounts particularly appealing for those who can maintain substantial balances.
Recommended: What Are Brokerage Checking Accounts?
Monthly Service Fee Waivers
Many dividend checking accounts offer ways to waive monthly service fees, which are common with standard checking accounts. To qualify for a fee waiver, you typically need to meet certain criteria, such as maintaining a minimum balance, setting up direct deposits, or signing up for e-statements.
Access to Other Account Benefits
In addition to higher interest earnings and potential fee waivers, dividend checking accounts often come with other perks. These might include:
• Free or discounted access to financial products and services, such as loans, credit cards, or investment services
• Out-of-network ATM fee reimbursements
• Enhanced customer service, including dedicated account managers or priority support
• Access to “early pay” (which allows you to get your paycheck or federal benefits a day or two early)
• Cash-back rewards for certain types of purchases using your debit card
Requirements and Qualifications
To open and maintain a dividend checking account, financial institutions typically require account holders to meet specific criteria. Here’s a look at some common account requirements.
Minimum Balance Thresholds
Many dividend checking accounts require that you make a certain minimal initial deposit to open the account. In addition, you may need to keep a minimum average monthly balance in order to earn interest and avoid fees. If your balance falls below the required threshold, you may earn a reduced interest rate or no interest and/or get hit with monthly service fees.
Debit Card Usage Requirements
Some dividend checking accounts require a certain level of debit card usage each month. This might include making a specific number of transactions or spending a certain minimum amount using the debit card. Since retailers pay a small fee to the bank or credit union each time they accept a debit card payment, this makes the account more profitable to the institution and enables them to offer higher interest rates.
Credit Union Membership
To open a dividend checking account at a credit union, you will need to first become a member of that credit union. Requirements vary by institution, but you may need to:
• Work, live, or worship in a certain geographic area
• Be a member of certain professional organization or labor union
• Work in particular industry or a certain employer
• Have a family member who is a member of the credit union
How to Apply for a Dividend Checking Account
Applying for a dividend checking account is similar to how you would apply for other bank accounts. Here are the general steps to follow.
1. Shop around: You might start by doing an online search using the terms “dividend checking” or “interest checking” to find interest-bearing checking accounts available at different banks and credit unions.
2. Compare rates and terms: Pay attention to annual percentage yields (APYs), terms, and fees. Keep in mind that the account with the highest APY may not always be the best option if there are high fees and you need to maintain a high balance to have them waived.
3. Check qualification requirements: If you’re looking at an account at a credit union, find out what’s required to become a credit union member and if you are able to meet those requirements.
4. Gather required documentation: Typically, you will need to provide identification (such as a driver’s license or passport), proof of address, and your Social Security number or Tax Identification Number.
5. Submit an application: Depending on the institution, you may be able to apply online or by phone, or you may need to visit a branch. Either way, you’ll need to complete the application form, providing all necessary information and documentation.
The Takeaway
A dividend checking account, available at credit unions, can offer a valuable mix of competitive returns on your balance along with the flexibility of a traditional checking account. However, you may need to meet certain criteria, such as maintaining a minimum balance or conducting a certain number of debit card transactions each month, in order to earn the advertised rate or avoid monthly fees.
Before opening an account, it’s a good idea to shop around and compare not only rates but also fees and requirements to earn the advertised rate or avoid fees to make sure you can fully benefit from the account.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Are dividends taxed in these accounts?
Yes, dividends earned in dividend checking accounts are typically considered taxable income. The interest paid by the bank or credit union is reported to the IRS, and you must include it in your annual tax return. The financial institution will usually send you a Form 1099-INT or 1099-DIV at the end of the year, detailing the total interest you earned on the account for the year.
What are typical dividend checking rates?
Typical dividend checking account rates vary widely depending on the financial institution and the account balance. Annual percentage yields (APYs) can anywhere range from 0.10% to as 4.00%-plus. Higher rates are often available to those who maintain larger balances or meet specific account activity requirements, such as a certain number of debit card transactions per month.
Can I lose money in a dividend checking account?
No, you generally can’t lose your money (up to certain limits) in a dividend checking account. Checking accounts at credit unions are typically federally insured up to $250,000 by National Credit Union Administration (NCUA). Interest checking accounts at banks are similarly insured by the Federal Deposit Insurance Corporation (FDIC).
Photo credit: iStock/solidcolours
SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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