Letting your money work for you is a great way to earn additional income. If you ever use a debt card and make purchases electronically as most of us do, you could be earning as much as 3% even up to 4% annual percentage interest on your money. Credit unions and banks are offering these free, high rate accounts in an effort to grab your attention and get your business. These accounts with these very high rates in general are not introductory, but ongoing and while the rates do fluctuate, they remain high and now is the best time for you to start taking advantage of them.
You will find that community and smaller sized banks and credit unions are offering these free, high yield checking accounts with minimum opening balances as low as $100. This annual percentage interest is usually obtained on deposit amount of up to $25,000, amounts greater will exclude from earning the interest. When you open one of these accounts, you will of course have a little bit of work to do in order to get this interest. Most institutions will require that you make 10 or more debit card transactions (sometimes of a certain amount) per billing cycle, accept electronic bank statements and authorize one automatic withdrawal or direct deposit per cycle. Institutions make profits as you fulfill these requirements and this way they can offer you this high interest rate.
So opening up one of these checking accounts and meeting the qualifications will earn you some money, but just how much? Let's look at a possible situation to show you how this works and how it could benefit you.
You have done your homework and found a local banking institution that that offers a free high yield checking account. The account offers an interest rate of 3.5% annually that is calculated using monthly compounding and can be used on deposits of up to $20,000 with a minimum opening deposit of $300. Now, say you initially place $12,000 into the account and live on a monthly budget where you put money used for monthly expenses into this account to be paid out from it. For the first month, you have an average collected balance of $12,654.00, how much money can you earn on this?
Using the simple interest formula, we have: IM = ($12,654.00)(0.2917/100) = $36.91
So you earn an additional $37 after one month just for having and using this account.
Now say, you continue the same habit and let the interest accumulate into the account allowing the average collected monthly balance to increase each month. The interest you earn monthly on the account is 3.5%/12 months = 0.2917 and so if we compound this monthly, starting with the initial amount in the account, in one year you have:
P = ($12,000.00)(1 + 0.2917/100)12 = $12,426.85
IM = $12,426.85 - $12,000 = $426.85
So in one years time your money has earned you an additional $427, not a bad return on your investment and definitely worth looking into. Here is a helpful website to find local institutions in your area offering these high rates.