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History of the High Yield Reward Checking Account

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What is the first bank to offer a high yield reward checking account? According to this Northern Colorado Business Report article, it was City National Bank in 1997. City National Bank is a small community bank located in Taylor, Texas. The bank worked with BancVue to develop a product with the goal of customer retention and to give it an edge over the larger banks.

BancVue used this experience to create the high yield reward checking product that could be rolled out to other banks. The stats showing the benefits to banks of these reward checking accounts apparently comes from City National Bank. Before rolling it out, BancVue worked with 10 other banks to perfect the software. It then rolled it out nationwide on October 2005.

In addition to the history, the article provides some insights into these reward checking accounts. It looks like BancVue helps the banks decide on things like yield, required number of debit card transactions and the maximum balance. The BancVue CEO was quoted as saying that the lowest rate that works with this model is around 4%, but they often encourage the banks to offer a higher rate. The CEO also mentioned that BancVue is working on three other products, and according to the CEO, "it's going to blow the doors off of reward checking."

It's interesting to note that City National Bank has maintained the 4.03% APY since I can remember. The 4.03% APY is earned on all balances without a cap. I wonder when BancVue decided to encourage banks to increase the rate to around 6%. Perhaps it was in 2006 when 5-percent-plus online savings accounts started to become common.

For more information and discussion on these reward checking accounts, please see my reward checking news and overview post. To find a reward checking account, please see my list of reward checking accounts around the nation and the best checking account post.
  Tags: checking account, reward checking account

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Comments
11 comments.
Comment #1 by Anonymous posted on
Anonymous
Thanks for a little more insight, banking guy. As much as I don't think the high rate products are really what I want to have to do, with the falling rates it might be the best option for savers.

I have been trying to use my local credit union debit card more often to get in the habit, but I'm having a hard time reaching the requirements in the course of my regular monthly spending. If it comes to me having to do it, I will have to get creative by using it for small gas purchases etc. It is going to take me a concerned effort.

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Comment #2 by Anonymous posted on
Anonymous
For the reward checking accounts requirements, it's easy to breakdown your purchases at the grocery/walmart store into multiple purchases of $1-$2 each on self checkout. You can knock out four+ purchase requirements per visit.

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Comment #3 by Anonymous posted on
Anonymous
I could do that but I try to be courteous to others behind me. And there always seems like there is somebody waiting...It is a good tip though.

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Comment #4 by Paul (anonymous) posted on
Paul
Hello Everyone,

I just wanted to share my way of reaching 10 debit card transactions requirement. It takes me 20 minutes online and one day per statement cycle.

I go to pay my tuition online. And make 10 consequent transactions in one day. All transactions must be different in amounts. So I pay like this: $0.05, $0.06, $0.07, ... etc until I reach ten transactions.

I understand that it will not be useful for everyone but maybe you can find a website where you make regular payments and the amounts are not subject to minimal transactions amounts. Perhaps cell phone providers or cable companies. So far my university tuition account worked well. Hope it was helpful.

P.S. I actually have two %6.01 - accounts. Therefore I have to do 20 transactions per months!

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Comment #5 by ThursdaysChild (anonymous) posted on
ThursdaysChild
If you need help making 10 debit transactions a month, why not donate to charity? There's a list on FatWallet Finance of charities that will accept automatic monthly donations as small as $1.00
http://www.fatwallet.com/forums/messageview.php?catid=52&threadid=765803&start=0

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Comment #6 by Paul (anonymous) posted on
Paul
Well, if I donate $20 a month for a year, I will give away $240! IT is a lot for me to donate at this stage of my financial situation. I definitely can spend this money on my car insurance or on a dentist instead ....

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Comment #7 by Anonymous posted on
Anonymous
Get $5-$10 of gas a few times a week (or a wife) to solve your debit card problems.

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Comment #8 by Elurian (anonymous) posted on
Elurian
It's worth noting that while City Bank first offered a high-yield for a behavior-specific account, it was another bank in West Texas and New Mexico (Pioneer Bank) that first introduced the concept of a cap. This "maximum-balance" on the high-yield amount is what allows banks to offer such great rates without worrying about rolling up their cost of funds.

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Comment #9 by Anonymous posted on
Anonymous
I would encourage all readers NOT to follow the advice of those here advocating $1 or less in order to meet the 10 transaction minimum. That is not fair to the bank- they're paying us good interest and deserve to make a little something on the transactions. As a matter of fact, do them the additional favor of making credit rather than debit transactions. The bank makes more from credit card sales than from debits- and you don't need to remember your PIN number. If you feed the account with enough new money to pay for groceries, gas, etc., i.e. money you'll have to lay out anyway, you're account will still grow. I've got a 5.25% checking account(when savings accounts are paying 1.5%) and I'm glad to let the bank make something on my purchases. If everybody tries to **** them, they'll lose money on rewards checking and are bound to discontinue the practice. **** the big banks instead.

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Comment #10 by Anonymous posted on
Anonymous
Just a little more history of a predecessor to these accounts:
For many years, banks were barred from paying interest on checking accounts. Very few actually wanted to, of course, and one of those was Citizen's Bank and Trust in Park Ridge, Il. They had a scheme wherein you put a good bit of money into your checking account and then every check you wrote was a "loan." You were charged interest for the time between your check and the next deposit to "pay off the loan." This actually worked quite well. I did this for several years until my local bank was able to pay interest, which in the early days was about the same. Now, of course bank interest on checking accounts is pathetic (0.05% at Wachovia) and the only way to go now is with a rewards checking account.

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Comment #11 by Anonymous posted on
Anonymous
Some people think that having a rewards checking account is an all-or-nothing proposition. That it's too much hassle to move all the auto-pays, etc. from the old bank. Well, if you have a close-by bank that you use for normal banking activity, you can keep using that bank, and add the rewards checking bank as a glorified savings account. You have to use it enough to get the high interest (direct deposit-only as much as you need to cover check-card expenses, and the 10 check-card transactions themselves.) But that's all the activity you have to worry about- the rest is all gravy. I put several recurring charges onto my rewards account, so I only have to go out and eat or buy gas about once a week to make my 10. Checks, etc. just come out of my "normal" checking account as before.

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