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When is Reward Checking No Longer Worthwhile?

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In the last two years interest rates on reward checking accounts have held up better than rates on internet savings accounts. However, one thing that complicates the comparison is reward checking balance cap reductions. In addition to rate cuts, reward checking customers also have to worry about reduction of the balance cap. This is the balance that qualifies for the reward rate. The portion of the balance over this cap typically earns a much lower rate. Here's an example from Danversbank, one of the few nationwide reward checking accounts that still has a 4.00% APY as of 7/09/2010:

  • 4.01% APY up to $25,000
  • 0.25% APY for portion of balance over $25,000

The $25,000 balance cap has been the most common balance cap for reward checking. However, more banks are reducing this instead of reducing the rate. Caps of $10,000 are becoming more popular. An important question will be how low can this balance cap be before the high yield is no longer worth the effort of the monthly requirements?

One method to determine this is to compare the reward checking account to your best savings account. How much more money per year or per month are you earning from your reward checking account compared to what you would have earned if you just kept the money in your savings account?

Let's assume a savings account APY of 1.50% and a reward checking APY of 4.00%. Below is how much extra you would earn in the reward checking account per year and per month for a range of balance caps.

Extra Money from 4.00% Reward Checking Over a 1.50% Savings Account

  • $10K balance = +$250/yr or +$21/mo
  • $25K balance = +$625/yr or +$52/mo
  • $50K balance = +$1250/yr or +$104/mo

Extra Money from 3.00% Reward Checking Over a 1.50% Savings Account

  • $10K balance = +$150/yr or +$12.50/mo
  • $25K balance = +$375/yr or +$31/mo
  • $50K balance = +$750/yr or +$62.50/mo

Based on these examples, you can determine if the extra money you'll get from a reward checking account makes it worthwhile. Is the extra $250 per year from a 4.00% reward checking account with a $10K balance cap worth your time? It's an extra account to worry about with monthly requirements that typically include at least 10 debit card purchases.

How much extra per month does it take for reward checking to be worthwhile for you?

High-Yield Reward Checking Accounts

Please refer to the reward checking section of DepositAccounts.com to find reward checking accounts in your state or that are available nationwide.

  Tags: checking account

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Comments
17 comments.
Comment #1 by glxpass (anonymous) posted on
glxpass
A Reward Checking Account is no longer worth having when, in a given month:

$ value of time spent meeting RCA requirements > earned interest difference between the RCA and a non-RCA.

The parameters naturally vary by individual, and are also affected by total money in RCA(s).  For me, RCAs 1% higher than non-RCAs make RCAs worthwhile.

-3
Comment #2 by cm posted on
cm
using online billpay takes what ... 2-3 minutes per? so for ten about 30 minutes per month.

$40 /hr is worth my time if i've got enough bills to pay piece-wise.

(if i had to go out and swipe 10 times ... i'd take a lot more than 30 minutes)

2
Comment #3 by outtempster posted on
outtempster
some RCA doesn't take online bill pay. It only takes debit card charge (not even the VISA bank card).

0
Comment #4 by Anonymous posted on
Anonymous
I stopped using Bank of Sierra's RCA because, in addition to its onerous requirements, they've deliberately made the statement closing date difficult to predict, to increase the chances that you'll miss it. Once, it fell an entire week before I expected. It's not worth the risk.

4
Comment #5 by Anonymous posted on
Anonymous
Ditto Anonymous #4. And Bank of Sierra just dropped its rate to 3.09%. They're also slow clearing/posting transactions. I don't know if this is standard practice for BillPay transactions, but BOS does not consider the BillPay qualification met unless and until the payee cashes the BillPay check, which you have no control over, followed by BOS's posting the transaction, all within the qualifying period. With the qualifying period a moving target, this creates problems.

1
Comment #6 by JT2345 posted on
JT2345
They're a zero for me as I live in Mexico most of the time and worry more about $100K CDs than how many transactions I've had. 

-6
Comment #9 by adityanm posted on
adityanm
There are some other redeeming points. Some RCA like Incommons & Bank2 have linked savings accounts that still pay 2 %.

-1
Comment #10 by cm posted on
cm
Anonymous - #5 ... send a billpay to yourself to ensure it is processed and settles within the qualification period. that you can control.

4
Comment #13 by Anonymous posted on
Anonymous
I have more time than money, so spending 30 to 40 minutes is no problem for me.

5
Comment #15 by Anonymous posted on
Anonymous
where is 11 and 12

-2
Comment #16 by last rose of summer (anonymous) posted on
last rose of summer
rhetorical question which is not spam  how  unless the voting is rigged does  13 get five thumbs up  the comment is with out merit and should be removed for i consider this spam at it s worst

-1