High 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.