Another simple way to increase your interest earnings is to switch your non-interest-bearing checking accounts to interest-bearing checking accounts. Usually banks will convert those accounts to NOW (negotiable order of withdrawal) accounts that bear a small rate of interest (usually less than 2%) and permit an almost unlimited amount of account activity. As we mentioned earlier, the main objective of cash management is to make your money work for you, and you can do this by earning interest on your checking accounts.
To analyze switching from non-interest-bearing to interest-bearing accounts:
- List all non-interest-bearing checking accounts. Include all department and CFO accounts.
- Request analysis reports from your bank or banks for all non-interest-bearing accounts for the most recent 12 month period.
- In a spreadsheet, list the average available balances for each account from the analysis report. If the analysis report has a summary sheet for each account that shows the average annual balance, then use this balance. If the analysis report shows the average balance by month, then enter the monthly balances in the spreadsheet and calculate the annual average balances.
- Review the available interest rates and select the one that is best for you.
- Calculate potential interest earnings from a switch to interest-bearing accounts by multiplying the annual average balance by the interest rate.