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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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The Shrinking Balance Caps of Reward Checking Accounts

POSTED ON BY

The balance caps of reward checking accounts are falling. In addition to lower rates, I'm seeing more reward checking accounts with low balance caps. In the past most reward checking accounts had balance caps of $25K. That means that the top rate only applies to balances up to $25K. A lower second-tier rate applies to the portion of the balance over $25K.

Balance caps of $10K, $15K and $20K are becoming more popular. A credit union that has maintained a $25K cap since 2007, Consumers Credit Union, recently informed its members that the cap will be falling to $10K starting in November. I just reported yesterday that Mutual 1st Federal Credit Union in Nebraska reduced its cap from $25K to $15K. The top yield actually was increased from 4.00% to 4.15% APY. Those who only had $15K in the account would see the amount they earn annually on interest rise by $21. However, those who had $25K would see the amount they earn on interest fall by $330.

Some banks and credit unions have been nice in that they only reduced the cap for new customers. For example, Danversbank grandfathered existing customers when they reduced their cap from $100K to $25K. United Heritage Credit Union in Texas kept its $25K cap for members who had opened its original reward checking account. For new accounts, the cap is $10K.

Most new reward checking accounts that have recently been launched have caps under $25K. One example is the new reward checking account at Beacon Federal which has a $20K cap. I first reported on it in this September review. It's still paying 4.00% APY for balances up to $20K, and I just learned yesterday that it's available nationwide.

For those with large savings who use reward checking accounts in place of savings accounts, this change can be as costly as rate cuts. If you want to keep the same amount of money earning the high rates, you have to open more reward checking accounts. Many readers have reported that they already have multiple reward checking accounts. In my poll from last month, 11 out of 89 readers said they have 8 or more active reward checking accounts.

The Poll Question

That leads me to the poll question of the day: What's the lowest reward checking balance cap that you will tolerate?

One thing that could complicate your answer is the interest rate. A $10K cap is easier to tolerate if it's paying 5% rather than 3%. For the sake of this poll, assume that low-cap reward checking accounts don't offer significantly higher rates.

Balance Caps and Reward Checking Accounts

These balance caps might seem strange to those unfamiliar with reward checking accounts. With most traditional money market and checking accounts, a higher interest rate applies to larger balances. However, with reward checking, the banks depend on fees from debit cards to help offset the costs of paying the high interest. That's why all reward checking accounts require a certain number of debit card purchases per month. Larger checking account balances only increase the banks' interest cost without increasing the debit card revenue. Banks just need a balance cap large enough so they'll be able to attract new customers. Since the average person doesn't have much savings, a lower balance cap may be better than lower rates from a marketing point of view.

To learn more about reward checking accounts and how they can pay such high rates, please refer to my post, The Math Behind Reward Checking.

To find reward checking accounts in your state and that are available nationwide, please refer to the reward checking section of DepositAccounts.com.

  Tags: checking account

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Comments
9 comments.
Comment #1 by starlight posted on
starlight
i don't have a magic number.  it is all relative to what my options are

3
Comment #2 by 51hh posted on
51hh
The shrinking/squeezing of RCA is from all sides:

1. Rate: From 6% to 5% to 4%; now 3%...

2. Balance Cap: From $100K to $50K to $25K; now $10-15K...

3. Number of debit card transactions: From 10 to 12 to 15; 20 may be norm soon!  From no minimum to $5; soon $10 a transaction.

4. Number of ACHs: From easy one ACH debit/credit to multiple ACHs to at least $500 direct deposit... soon they need your entire monthly paycheck.

5. Billpay: From no requirement to multiple Billpays with a minimum.

6. Difficulties of debit transactions: Verizon etc. are charging online debit card payment.  Some RCA bank require full utility bill payment.  Soon you will need to perform magic tricks on debit cards to qualify.

7. General: Many banks now require usage as a primary checking; what does that mean?  -- We will surely let you know when you are not using it as primary checking (hehe).

8. More tricks (no treat): We will change rate/rules/regulations to keep you on your toe; and the goal is to catch you in surprise to ruin your day (and interest).

9. Etc, etc., etc....

 

15
Comment #3 by barrytuneup (anonymous) posted on
barrytuneup
Just to show how some banks with RCA will cheat you, I had 25K at First National lCommunity bank in Pa. for about 14 months. Last month i got an email that the RCA was no more and they dropped the rate from 3.25% to .50% with some kind of gimmick debit card program. BUT THEY DID IT AFTER 5 DAYS IN TO THE CYCLE!! **** all you customers. They seem to be really rotten. ON the other hand I have an RCA at Patriot bank in fl. and they emailed me last month that they wre dropping the cap to 25k from 35K and increasing debit usage to 12 per mon th from 10. AT least they were gentlemanly enougth to wait to start the new rules at the end of the cycle// 10/13/10. 3 weeks notice compared to 1 day at FNCB> I withdrew my fiunds from FNCB and opened up a new RCA at Coulee!!! 

3
Comment #4 by Anonymous posted on
Anonymous
Hey, I'm still waiting for First Clover Leaf Bank to notify me that they dropped their rate and balance cap! Guess they are hoping a lot of customers will simply not notice?

Something else I'm seeing with RCAs, though too early to say if intentional and a trend, is a slowdown in the clearance of debit charges. Typically 2-4 days in the past, now taking more like 5-7 days. This would trip up people who wait till near the end of the cycle to wrap up their charges. So beware!

2
Comment #5 by starlight posted on
starlight
#4, I've been noticing the delays in posting debit card transactions into my RCA as well - some banks more than others!  I have seen up to 2 weeks but that bank is going through website upgrades so let's hope that solves that delay!  : )  One really needs to keep track of how many transactions one has made without relying on counting it at the bank.  Also since most RCAs require that the transaction POST by the cutoff - make sure to get them at beginning of cycle!

3
Comment #6 by andybuji posted on
andybuji
RE #2 above - Verizon FIOS customers are being hit with the extra $3.50 to process online payments, not Verizon wireless.

4
Comment #7 by Rebecca (anonymous) posted on
Rebecca
Yes, some banks take much longer than others to process those debit card transactions.  It helps to be aware of when the statement cycle starts and front-load your transactions on the slower cards.

1
Comment #8 by Anonymous posted on
Anonymous
RCAs?If you have famiy members,use your debit card to buy giftcards at your local supermarket.  Buy at the lowest $$ amount allowed on your debit card  In other words,give the banks ****.  That's what the banks give savers . At 2% saving is not worthwhile.  I'd as soon buy a lotto ticket .  It's less work.  

1
Comment #9 by Anonymous posted on
Anonymous
If the Fed buys lots of goverment bonds, the banks'll lower interest rates for savers.  November's Fed meeting will set the pace.  Watch your RCA rates daily.  Higher prices and lower interest rates simply squeeze everyone.  Especially savers.

3
Comment #10 by starlight posted on
starlight
For me, I have to look at it case by case.  After viewing 3.03% 55mo CD on this forum, I compared with my lowest paying RCA which was paying 3.51 up to 25K.  So basically I get $10/mo more in the RCA than I would in CD WHEN I do 15POS and 1 DD or ACH monthly; this particular bank delays posting by up to 2 weeks so I really have only a 2 week window to get the qualifying transactions in.  Not worth the extra $10/mo to me and the only other thing I am giving up is liquidity; if I want my $25K out of the RCA, no penality to withdraw and the CD has 90 days EWP with emergency exclusions which I can live with.  Both are FDIC at fairly strong banks.  With all the talk of RCAs lowering rates while increasing requirements it made sense to me to make this change.  Also am getting tired of the wierd looks I get paying for my items separately on different cards to get the POS transactions in so it will be nice to have one less RCA to track and jump through hoops.  I don't know if I will continue moving RCA $ to CDs but I will continue trying to be aware of what my options are and making smart decisions.

1