Define Interest-Bearing Account

Interest-bearing accounts add money to the consumer or business account balance

The interest-bearing account definition is an account at a bank or credit union that earns interest over a specified amount of time. To define interest, consider it as money paid to the account based on the account balance. Some banks have specified rules including an account balance requirement as to when they will pay interest to the account. In some cases there can also be a lowered interest rate or additional fees if the minimum account balance is not met.

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Benefits of Interest-Bearing Accounts

Consider that the interest-bearing meaning in banking is that a business or consumer can earn money for keeping money deposited in the bank. In cases where the interest earned is at a higher rate, the interest can add a good portion to the account balance over the course of a few years. The interest earned can be used as extra income by the business or consumer to pay for emergencies and unforeseen costs.

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Reasons for Interest-Bearing Accounts

There are many reasons why people open interest-bearing accounts. A parent may choose to open an interest-bearing account as a college savings account. In this case if the parent continues to add money over an 18-year period, thousands can be added to the balance as a result of the interest paid.

A young couple can choose to open the account to save a down payment for their first home loan. In other cases, a consumer may want to improve financial management and save money with added benefits.

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Potential for Customers

Interest-bearing accounts have the potential to be a good investment for some consumers and businesses. For a consumer the account can be used for extra income for the account holder. For example if the account holder wants some extra money, but does not want to withdraw from savings, he can choose to withdraw the interest earned.

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According to October 2021 data from the Federal Deposit Insurance Corporation, the average annual deposit rate ranged from ​0.06 percent​ for a basic savings account to ​0.27 percent​ for a 60-month certificate of deposit.

There is no set amount required to make withdrawals from an interest-bearing account. However, in order to start earning interest, you might have to make a minimum deposit that depends on the account type and may be zero for some accounts. A minimum balance may also required so the account holder can avoid fees.

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Consider also​: How to Calculate Daily Interest Rates

Time Frame for Deposit

A consumer can choose between different types of interest-bearing accounts. Some of the accounts have a set time when interest is paid (monthly, every ​six months​, quarterly or annually) while other interest-bearing accounts allow the customer to choose the time when the account interest is paid. Among the customer's choices are interest payments on a monthly, quarterly or annual basis.

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Consideration for Closing Account

If you plan to close your bank account, you should try collecting the money first. If a consumer does not collect all the interest before the interest earning period is due the payments are typically not made to the consumer. The bank will typically retain the unpaid interest.

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