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Financial Dictionary - Interest-bearing account

Interest-bearing account

An interest-bearing account is a type of bank account that pays the customer an interest rate in exchange for them depositing their money at the bank.

The return and interest rate offered will vary by bank and depend on the account terms and conditions. They can also change over time. This interest rate is payable on the account balance over a fixed period of time. There is typically no minimum amount of money needed to open an interest-bearing account, although the more we place in the interest-bearing account, the better the return.

The return we earn on our money can be based on different criteria:

  • The interest rate may be payable on different tranches of the account balance. It may be fixed, variable or index-linked and may be staggered or valid over a limited period of time only.
  • The bank may also insist that the customer continues to hold a minimum balance in their account in order to receive the return.
  • There may even a limit below or beyond which no interest is payable.

Interest-bearing accounts offer customers the freedom to withdraw their money whenever they wish without incurring any charges or penalties. There are all sorts of interest-bearing accounts and each bank offers different terms and conditions. In some cases, these types of accounts, which are mainly intended for savings purposes, do not allow for direct debit of bills or loan applications, and often no cards are issued.