Understanding Premium Checking Accounts: Are They Right for You?

When it comes to banking, a premium checking account stands out as a step above the average, offering perks, earning interest, and conveying a sense of exclusivity. But is a premium checking account the right choice for you? In this blog, we’ll delve into what premium checking accounts offer, their pros and cons, and how to decide if you can benefit from one.

What Is a Premium Checking Account?

Premium checking accounts are specialized accounts offered by banks and credit unions to cater to customers who maintain high balances, have multiple bank accounts, and use a variety of banking services. Generally, to qualify for a premium checking account, you must maintain a minimum balance of $15,000 or more. However, many banks allow you to combine the balances of your eligible deposit and investment accounts to meet this requirement. Some even let you include the balances of immediate family members living with you.

In return for maintaining this minimum balance, monthly maintenance fees are typically waived, and you gain access to special features that standard checking accounts don’t offer. These features can vary but usually include:

Interest

Unlike standard checking accounts, premium checking accounts earn interest. The average annual percentage yield (APY) depends on the bank and may vary based on your balance.

Discounts on Other Banking Services

Premium checking accounts often waive fees on linked checking and savings accounts, non-bank ATM use, wire transfers, stop payments, money orders, cashier’s checks, safe deposit box rentals, and foreign currency exchange fees.

Loans at Reduced Interest Rates

Customers with premium checking accounts may qualify for lower interest rates on loans. For example, you might be eligible for a 1.25% interest rate discount on a home equity line of credit or a 0.25% interest rate discount on a new auto loan.

Higher Limits on Money Movement

Restrictions on amounts you can transfer or withdraw are usually lower with premium checking accounts. For instance, you may be allowed higher limits for Zelle transfers, ATM withdrawals, and debit card purchases than standard accounts.

Investment Advice and Tools

You may receive discounts on investment advice, tools, or trades for linked investment accounts. This could include complimentary financial planning, commission-free trading, access to financial advisors, and discounted advisory fees.

Pros and Cons of Premium Checking Accounts

Premium checking accounts come with both benefits and downsides.

Pros of Premium Checking Accounts

• Earn Interest: Since standard checking accounts rarely earn interest, the interest-earning aspect of premium checking accounts is a significant advantage.
• Fewer Fees: If you frequently use bank services such as purchasing money orders, exchanging foreign currency, or making wire transfers, a premium checking account can eliminate those fees.
• Lower Cost of Borrowing: When you need a mortgage or other loan, a premium checking account offering lower loan interest rates helps reduce your cost of borrowing.
• Financial and Investing Services: Discounts on investing fees or trades, plus free financial and investment advice, can help maximize your money.

Cons of Premium Checking Accounts

• High Minimum Balance Requirements: Depending on the bank, you’ll likely need to maintain a minimum balance of $15,000 or more to open a premium checking account. This might not be realistic for everyone, even when combining multiple account balances.
• Interest May Be Low: Checking and traditional savings accounts typically offer low interest rates, even on premium accounts. You may find better rates with an online high-yield checking account or high-yield savings account.
• High Maintenance Fees: If your balance dips below the minimum required, monthly maintenance fees may kick in for your premium checking account and any linked accounts. This can add up if you have several accounts.

Is a Premium Checking Account Worth It?

Premium checking accounts may be worthwhile for some people, but they’re not for everyone. Do you already have large balances in multiple checking and savings accounts at one bank? Do you frequently use bank services such as exchanging foreign currency or purchasing money orders? If so, a premium checking account could save you money on maintenance and service fees while also earning interest.

However, maintaining a high average monthly balance may not be attainable for most people. Dipping below the minimum could trigger fees, reducing any savings or earnings from the account.

Alternative Options

If a premium checking account isn’t quite right for you, consider these options:

Reward Checking Account

Like rewards credit cards, reward checking accounts offer perks such as cash back, welcome bonuses, waived fees, or high APYs. For example, Discover’s reward checking account offers 1% cash back on up to $3,000 in qualifying debit card purchases per month. To earn rewards, you must meet the bank’s criteria, such as making a certain number of debit card purchases per month or maintaining a minimum account balance.

Interest-Bearing Checking Account

Unlike standard checking accounts, interest-bearing checking accounts earn interest—but it’s typically minimal. As of September 18, 2023, interest-bearing checking accounts earned an average APY of 0.07%, although online-only banks may offer higher APYs. Interest checking accounts may also require a higher minimum balance or higher fees than regular checking accounts.

High-Yield Checking Account

High-yield checking accounts earn higher interest than other types of checking accounts. You can currently find high-yield checking accounts offering APYs of 1%, 3%, or more; online-only banks often offer the highest interest rates. APYs may vary based on your checking account balance. Earning the highest APY could require meeting certain criteria, such as maintaining a minimum balance, having a minimum number of debit card transactions per month, using online banking and e-statements, or having at least one direct deposit per month.

How to Open a Premium Checking Account

You can generally open a premium checking account online or make an appointment to visit a physical bank in person. Check the bank’s website for the information you’ll need. Most banks require:

• Government-issued photo identification, such as a passport, driver’s license, or state or military ID card
• Social Security number or taxpayer identification number
• Proof of your address (such as a mortgage statement or utility bill)
• Birthdate
• Contact information

You must also make an initial deposit meeting the bank’s requirements for its premium checking account.

If you already have an account with the bank, the process is even simpler. For example, you can switch your existing Wells Fargo checking account to one of their premium checking accounts over the phone. The bank will confirm that the combined balance of your qualifying existing accounts surpasses the minimum requirement; if not, you’ll need to make a deposit.

The Bottom Line

Compare fees, APYs, services offered, and convenience to find the checking account that best fits your needs, whether that’s a premium checking account or something else. Checking accounts don’t affect your credit score; however, unpaid bank fees sent to collections could have a negative impact. Set up account alerts and check your balance regularly to avoid potential problems and fees. You can also sign up for free credit monitoring from Experian to keep tabs on your credit report and get alerts to important changes that could affect your credit score.

For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to speak with one of our expert loan salespersons. We are committed to providing you with the best service and helping you find the right mortgage solution for your needs.