All About Reward Checking Accounts
Reward checking accounts offer above market interest rates, higher than almost any other bank deposit account, if you can satisfy their requirements.
A typical reward checking has three or four of these requirements:
- 10-15 debit transactions within a statement period
- electronic paperless statements
- at least two bill pay transactions per statement period
- at least one direct deposit per statement period
In addition to those requirements, you only earn the higher rate for a portion of your balance. Usually the cap is set at $25,000, so you only earn the higher rate on $25,000 of your deposit.
A reward checking account can offer such high interest rates because their requirements generate income for the bank (they beat even the most generous of CD rates). Specifically, the debit card transactions generate the bulk of the income. Whenever you use the debit card to make a purchase, the bank collects fees on the transaction. Your above-market interest rate is funded by those fees.
The electronic paperless statements are a cost cutting measure and the bill pay and direct deposit merely make the account harder to change. If you're paying two bills and getting your paycheck deposited each month, it's a bigger pain to switch banks.
Best of all, they're FDIC insured up to $250,000!
Are they worth the hassle? Let's look at on eexample. Bank of the Sierra Reward Checking Account offers 4.51% APY on the first $25,000 as long as you make 12 debit card transactions, one bill pay, and one direct deposit. Your balance above $25,000 earns 1.01% APY, which is probably better than your standard checking account. If you fail to satisfy the requirements you earn only 0.12% APY, which, I would guess, is still better than your standard checking account!
(This is not an endorsement of Bank of the Sierra)
So they seem to be worth the hassle, if you can get enough transactions. Do you have a rewards checking account? Any words of wisdom?
Jim writes daily about money at his personal finance blog, Bargaineering.com.
(Photo: cutiemoo)
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Comments:
does it pay? it's hard to argue that it doesn't. an average balance of $25k would earn over $1100 in a year.
this is even better than most credit card rewards programs b/c you're not required to actually spend the money to earn the rewards. meeting the billpay/direct deposit requirements is easy by connecting the acct. to an online bank like ING.
the only disadvantage that i can think of is the increased liability of using a debit card, but that risk is nominal since visa's zero liability policy carries over to their debit cards, & federal protections still limit your liability for unauthorized withdrawals. it's just that unlike credit cards, you're out the money for as long as 10 days.
even if you don't want to transfer all your purchases over to debit, you can easily meet the requirement by stopping for coffee 3x week on the way to work. that would still net you ~$700/yr (& free coffee).
@Ronin-Democrat: Why no rewards? If you are paying it off every month, not having a rewards card is just passing buy free money.
Rewards checking accounts are very much worth the hassle.
I too was worried about keeping a very large amount of my money in a checking account, with a debit/ATM attachment, no less.
But where else are you getting 4%interest? It's not difficult to have a paycheck autodeposited, and making the required debits each month is a little too easy.Bank statements online make it convenient to watch my account daily for any signs of trouble.
I wondered how the bank could 'afford'to pay such high interest-thanks, Consumerist, for explaining that.
Only make the required minimum debits and watch your account.Nice returns on these accounts.
I have one of these now, at a local Philadelphia bank. I want to say - I need to work to earn money, and that's fine by me.
The requirements are 10 debit transactions and 1 direct deposit OR one automatic debit per month.
I only use my card for purchases less than $5 (large purchases I always use credit because of the cash back), and I count to make sure I only make 10. I make 5% interest in the process, and it's definitely worth it for me. If you're lazy, then no, it isn't for you... but if you're lazy you're probably not going to switch banks for an interest rate anyway.
@Ronin-Democrat: Why can't you just use the debit card for 10 of your normal credit card purchases? It's not like you need to make 10 EXTRA purchases a month, just use their card for 10 of the usual ones.
If I was like a bank I would say, "This be why I like cold hard cash." I love going into places like bestbuy and other places and paying with cash. I can usually get things as much as 20% off the sticker price. Why you ask? No credit card fees they have to pay for that, and they get there money there and now. Any other reasons? probably was over priced anyways. I love cards but I hate them. They make everything more expensive then what they really are.
@kujospam: The sales associates or cashiers at Best Buy aren't inclined to give you a discount because you pay cash. I could understand a small mom & pop store doing that, but not a chain like BB.
While it's not impossible to get 20% off by negotiating/price-matching, they're probably not doing it because you're paying with cash.
I have a rewards account and it works well. If you get about $100 per month in interest divided by 12 purchases, it's $8 in interest per transaction. The time it takes to alter purchase behavior is well worth it. I put the cheap purchases ($5 and under) on the debit card and all else goes to the credit card with rewards.
I can't even imagine keeping 25 grand in my checking account. Maybe this is because I am poor as hell? I don't feel poor as hell but 25 grand in a checking account is an unbelievable amount of money to me.
Debit purchases are a suckers game.
Get a credit card with no fee and no rewards.
Use it for everything and pay it off every month.
Keep the money you'd pullout to make those debit purchases in your account.