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Debit Card Dangers - When to Use Credit Cards Instead of Debit CardsHigh Demand of Reward Checking Accounts Forcing Banks to Reduce Availability
In the last few months we've seen several changes for the worse in many reward checking accounts. I have a few more to report. I and several readers have been reporting on these changes as they occur in the reward checking forum. These include the new debit card requirements at Randolph Bank & Trust Company, and the lower rates at Bank of the Sierra, First Arkansas Bank & Trust and The Bank of Fayetteville.
Another type of change that has been common is when banks reduce the availability of their accounts. Many banks have started out offering these accounts with nationwide availability. Before long they start restricting new accounts to a smaller and smaller region. Too much demand appears to be the main reason. A bank rep from one of these banks told me that they had to reduce availability because they couldn't keep up with the demand. I thought it would be useful to summarize these banks that have fallen off the nationwide list and to provide a new top nationwide list.
Reward Checking Overview
For those new to high-yield reward checking accounts, these are free checking accounts that reward customers with high interest rates and ATM fee reimbursements when customers meet monthly activity requirements. The main one is debit card usage. Most reward checking accounts require at least 10 debit card purchases a month. If the requirements are met, the customer earns a high rate on his checking account balance (typically up to a maximum of $25K) for that month. Also, ATM fees charged when using other banks' ATMs are reimbursed.
Many reward checking accounts have rates 2 to 3 percentage points higher than the best internet savings accounts. The debit card usage requirements and the balance caps help make this possible. I have more details about this in my post on the future of reward checking accounts.
Reduced Availability
These high rates are probably looking very attractive especially to savers with maturing CDs. Most banks that offer these reward checking accounts are small banks, so you can see why the nationwide availability often doesn't last long. Here are three banks that have just recently ended the nationwide availability of their reward checking accounts:
- KANZA Bank in Kansas (3.00% APY up to $25K as of 12/8/10) is now limiting new accounts to their market area inside Kansas.
- Ouachita Independent Bank in Louisiana (3.01% APY up to $25K as of 12/8/10) is now limiting new accounts to LA, TX, MS and AR.
- HCSB Bank in Texas (2.78% APY up to $25K as of 12/8/10) is now limiting new accounts to Texas residents.
Top Nationwide Reward Checking Accounts
After these changes, I now have four banks in our nationwide reward checking account list which offer around 3.00% APY for balances up to $25,000. I've listed these banks below along with their asset size and the date that I first reviewed their reward checking accounts:
- Coulee Bank in Wisconsin. $264 million in assets. My first review was in 8/1/2007.
- Danversbank in Massachusetts. $2.62 billion in assets. My first review was in 4/8/2007.
- Liberty Bank in Illinois. $861 million in assets. My first review was in 12/19/2007.
- Southern Community Bank & Trust in North Carolina. $1.66 billion in assets. My first review was in 2/8/2008.
One thing that is promising is that these four accounts are around 3 or more years old. It appears these banks have been able to make the reward checking model work. All had started these accounts with a 6% APY. Now they're half of that. Considering most internet savings account rates are only around one fourth of what they were in 2007, these reward checking rate cuts are not that bad.
One thing to keep in mind is that there are a lot of savers out there with CDs that are maturing. With CD rates so low these days, I'm sure many of these savers will be looking for alternatives. These banks with reward checking accounts may continue to see growing demand, and thus, they may have trouble keeping these accounts nationally available.
Other High-Yield Reward Checking Accounts
To find reward checking accounts in your state or to find those available nationwide, please refer to the reward checking section of DepositAccounts.com.
SaveYurMoney - #1,
I hate having to jump through ever-changing hoops to keep a certain level of rewards. Making at least 10 debit card transactions every month probably knocks-out some potential customers. I wonder how many rewards checking customers eventually fall out of compliance and do not get the full rewards?
Anonymous - #2,
I signed up for Randolph Banks account and found that after having to make all the transactions, it wasn't worth it. It may make sense if you are going to use it as your primary checking account, but think hard about it. After making the required transactions, you will only end up earning about 1.5% interest.
And, the online banking interface sucks.
51hh - #3,
Randolph Bank is another bank that rapidly limited their availability to in-state residents and one account per social security number.
I truly hope that they will keep the rate at 4% after 1 January 2011, which may make the ($20 X 6) debit card requirements worthwhile.
glxpass - #4,
"
Anonymous - #2, Wednesday, December 8, 2010 - 1:04 PM
I signed up for Randolph Banks account and found that after having to make all the transactions, it wasn't worth it. It may make sense if you are going to use it as your primary checking account, but think hard about it. After making the required transactions, you will only end up earning about 1.5% interest."
I think you're mixing up debit card transaction amounts with loss of interest. It's the interest lost from the debit card transaction amounts, not the amounts themselves that you'd use for calculation purposes. If you make $60 in total debit card transactions per month (the monthly minimum), that's approximately 24 cents of interest you've lost for the month because of debit card transactions.
Andareed - #5,
"I signed up for Randolph Banks account and found that after having to make all the transactions, it wasn't worth it. It may make sense if you are going to use it as your primary checking account, but think hard about it. After making the required transactions, you will only end up earning about 1.5% interest."
Randolph Bank's rewards checking account earns 4.75% intrest on up to $25k. Where's this 1.5% figure coming from?
51hh - #6,
Glxpass explained a little of how Anon. #2 came up with the net 1.5% interest. Let me try as well:
Assume 5% for ease of calculation. The monthly interest for $24K (for round number calculation) is roughly $100. The total debit card transaction is $5 x 12 = $60. One does not lose the $60, only $1.20 assuming using the 2% cash reward credit card instead. Anon made this erroneous assumption that the $60 is lost. Thus the net monthly interest becomes $40. Thus the 2% annual interest earning. In actuality, it is close to 5% interest earning, with the loss of credit card cash reward being negligible.
Hope this clarifies.
darkdreamer4u - #7,
It sometimes puzzles me how people like anon. #2 can get through life with such rudimentary math and logic skills. And then this kind of people have the cheek to state their fallacies as facts...
Rebecca (anonymous) - #8,
The new terms on the Randolph site say one account per social security number. Does anyone know if this applies only to new accounts? Would they change one of my accounts to non-rewards??
Anonymous - #9,
Well, as far as statements made on this forum, fallacies being touted as facts, it is just the nature of the beast, being an open blog. It pays to do your own research and don't take everything you read on here as fact. As an example, another statement was made about Randolph Bank reward checking program recently, stating that the interest rate was DEFINITELY being cut on January 1, 2011. The same person later stated that they hoped the interest rate would remain at 4 percent after January 1, 2011. Well, the interest rate is currently 4.75 % APY and according to my conversation with CSR during a visit to the Mebane, NC branch , they have no knowledge or indication that the bank plans to cut the interest rate in January.
51hh - #10,
Anon. #9:
Just like what you said from branch CSR: No interest rate cut. I heard from the phone CSRs (two of them) that there would be interest rate cut. And I stated here that I hope that the rate will still stay at 4% level. Can one person just hope? And the prior statement is just quotes from CSRs, like yours. None of those were "FACTS."
Bottom Line: Let us wait for the fact about Randolph's pending interest rate in January 2011 instead of guessing and debating among ourselves.
51hh - #11,
Rebecca:
Some (e.g., Glxpass) have already checked and Randolph Bank plans to grandfathers those with multiple accounts before; and that is a fact.
Rebecca (anonymous) - #12,
Thanks 51hh!
Anonymous - #13,
I've had a Randolph Bank RCA for some months, and I'm quite glad I was able to open it before they began limiting access to their accounts. 4.75% up to $25K is a great deal in today's environment. And I have no problem meeting their debit card requirements, either the current ones or the new ones, which actually will be easier, starting in January.
For the record, the recent announcement from the bank made no mention of any change to their interest rate, when the debit card rules change. It didn't say they would be changing the rate. It didn't say they would not. The announcement was silent on the subject. So we'll just have to see what happens. The various comments offered by CSRs problably are not informed or of much value at this point.
As for the comment about not getting their real interest rate, that's pretty silly. Every month, I spend money for all kinds of routine things, grocery shopping, gas, restaurants, online purchases, etc etc... I don't do those because I have an RCA. I do them because I need them for my life, and I choose to pay for them with my RCA card instead of cash, because it earns me nearly 5% interest on $25K. I'd be buying those same things regardless.
The only way the other argument applies if someone starts buying things they otherwise would not buy, just to satisfy the card's requirements. Then they would be losing money and not benefiting the interest rate. But in that instance, the user really isn't managing their finances in a smart way, regardless.
Corn Muffin (anonymous) - #14,
Randolph just lowered their rate to 2.5%. They basically cut the rate in half and increased the minimum debit charge from $5 to $20, although the new requirment is 6 debits per month. Not such a good deal now.
Rebecca (anonymous) - #15,
Question for anyone with DanversBank - it says "recurring ACH or direct deposit" as one of the requirements. What do they mean by recurring? Can I do my token transfer between banks or does there need to be some automatic process? Does "recurring" only apply to ACH?
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