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Free checking accounts are wonderful because you get a lot of features for free. However, you have to give up a very important feature: earnings on your free checking account balance. For those of us who want to earn a little extra, there is a way to earn interest and still have a free checking account.

Step 1: Open a Free Checking Account

Take your pick on free checking accounts. Your local banks and credit unions probably have whatever mix of features and benefits are best for you. The most important thing is to know that the free checking account you open will not have fees associated with ACH (Automated Clearing House) transfers. Ask the customer service representative about this.

Step 2: Open a No-Fee or Low-Fee Interest Bearing Account

A lot of online-only banks have interest bearing accounts that do not have an annual fee. They don’t even have minimums – you can keep $20 in there if you want. Just find one that pays a respectable yield and will allow you to create a link to your free checking account (many of these online-only banks only work that way – you have to have a link to an external bank account).

Search around for the best rates from an FDIC insured bank. Alternatively, there are even mutual fund companies that offer money market funds with a competitive dividend yield. All you need is an institution that will pay you something and link to your free checking account.

Keep in mind that your bank or credit union might have a savings account or CDs that will give you what you need. Make sure that there are no fees or costs, and that the interest rate is competitive. If this is the case, the

link already exists and moving money back and forth could be much faster.

Step 3: Establish the Link to Your Free Checking Account

After you have both accounts opened, you’ll need to “link” them. This just means you have to tell them about each other. The most common way is to send a voided check from your free checking account to the interest or dividend paying institution. The institution may have a simple form for you as well.

Note that you’ll probably have to wait while the link is established. This can take several weeks, so get things up and running as soon as possible.

Step 4: Zap the Money Back and Forth as Needed

Once your link is up and running, you just monitor your monthly cash flow and expenses. If you’ll have more money than you need, you can zap the money from your free checking account over to the institution that pays a dividend or interest. When you’re ready to spend that money, zap it back to your free checking account.

To ‘zap’ the money, you usually just go to a website and request a transfer of funds. Then you’ll need to wait several days for the transfer to take place. Be sure you know how long each institution requires that the money is on the books before it’s “cleared cash” (meaning you can write a check against it). Some institutions place a hold on the funds, and you should know how long the hold is so that you don’t bounce any checks.

Step 5: Congratulate Yourself

Now you have the best of all worlds. You get to enjoy the benefits of a free checking account, and you get to earn money on your idle cash. It’s similar to having a more expensive checking account, however you don’t have to pay. The only thing you give up is a few minutes of your time each month while you transfer the money.

Note: Justin Pritchard is a Registered Representative and Investment Advisor Representative with Financial Network Investment Corporation, Member SIPC.

Category: Bank

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