A reader forwarded me an email she received from City National Bank. The bank appears to be pushing for larger debit card purchases. Here's an excerpt of the email:
We are committed to offering innovative and rewarding products like our Free Reward Checking Account. We are only able to offer this account with such an extremely attractive rate of interest and its additional benefits if our customers use their City National Bank debit card for their typical daily expenditures. Appropriate utilization of the debit card benefits all account holders, as well as the bank; therefore, it plays an essential part in our ability to maintain all of the attractive benefits and features of this account.
In reviewing your Reward account transaction history, we have noticed you are using your debit card in what appears to be a calculated and limited fashion. In the true spirit of our program we would like to encourage you to utilize your Reward account as your "primary" checking account. If your current City National Bank Reward account is not your primary checking account we would ask you to review your monthly statement, and let us know how we can assist you in the transition.
As with all of our Reward account customers, we will continue to monitor the debit card transaction activity on your account. Please be aware we reserve the right to close any account at any time if we feel the account is not being used in the "spirit" intended.
City National Bank isn't the first bank that has done this. Over a year ago, Citizens Bank Minnesota warned customers that it may close accounts if they see too many small debit card purchases (
see post). Has your bank sent you such a warning? If it has, please leave a comment.
The reader mentioned that she had around $30 of total debit card purchases for the previous month. City National Bank is one of the few banks in my
nationwide list that has no balance cap. All balances qualify for the top rate if the monthly requirements are met (
see account review). So it has probably attracted many people who are keeping large balances. Just two weeks ago, City National Bank reduced its top rate from 3.28% APY to 2.65% APY. The bank had kept the 3.28% APY since January 2008.
Based on the bank's
FDIC data, the deposits have shown a lot of growth over the last year: from $119 million to $155 million (+30%). However, loans have only grown from $60 million to $62 million (+3%). Debit card usage can help banks maintain the high reward checking rates, but the impact is less for larger deposit balances. For these cases, loans become more important, and it's clear City National Bank's loans haven't kept up with its deposits. I described how debit card usage can help pay for the high interest in this
post on the math behind reward checking.
In an old poll that I included on the left side of my
reward checking website I asked readers how much you spend each month with your reward checking debit card. Out of 342 votes, 46% spend under $100 on average. It should be noted that readers of this site are probably not the "Average Joes". In
my math behind reward checking post, I described data that I received from a credit union that showed the average monthly debit card usage to be around $900. Banks definitely need more of the Average Joes who maintain low balances and make a lot of purchases. If banks have enough Average Joes, they should be able to pay top rates 1% or more above online savings account rates.
