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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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10 Common Traits of High-Yield Reward Checking Accounts

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10 Common Traits of High-Yield Reward Checking Accounts

I first started reporting on high-yield reward checking in 2006, and since that time I've reviewed hundreds of these accounts. The high-yield reward checking model was created by BancVue, but in the last few years we have seen banks and credit unions create their own versions of reward checking accounts. The version from BancVue continues to be the most prevalent. We list all versions of reward checking in our reward checking table.

As I described in February, reward checking has been under pressure from not only the ultra-low interest rate environment, but also from new regulations. The new debit card interchange fee regulation which may or may not take effect this year could have a significant impact. Both banks and credit unions have made that claim, but it's possible that even if the regulation takes effect as scheduled, there won't be a significant impact. The reason is that the vast majority of reward checking accounts are offered by small institutions which are exempt from the interchange fee caps that will be set by the new regulations.

So until the new regulation takes effect and its impact to reward checking becomes clear, I'm not going to write off reward checking. As long as their rates are at least one percent above internet savings account rates (for reasonably large balances), I'm going to continue to view reward checking as a good alternative to internet savings accounts.

If you're looking to open a new reward checking account, I thought it would be useful to compile a list of common traits of reward checking. This is intended to help you understand what to expect when you open these accounts and how to get the most out of these accounts.

First, for those who are not familiar with high-yield reward checking, here's a general overview.

Overview of High-Yield Reward Checking

The basic high-yield reward checking account is a free checking account with no monthly service charges. You are rewarded with a high interest rate if you meet monthly requirements. Most also reward you with ATM fee reimbursements if you use ATMs at other banks. Below are the typical rewards:

  • Some top rate (2.50% is typical) for balances up to a cap ($25K is typical)
  • Much lower rate (i.e. 0.25%) for the portion of the balance over the cap
  • Tiny base rate if requirements are not met (i.e. 0.05%)
  • ATM fee refunds up to a certain limit per month

The typical monthly requirements include:

  • 10 to 15 debit card purchases
  • At least one direct deposit or ACH transaction
  • Receiving electronic statements

There are sometimes additional requirements such as logging into online banking at least once a month or performing online bill payments.

One nice thing about this debit card requirement is that it's favorable to savers rather than spenders. Rewards from credit and debit cards are often based on the amount of the purchases. An example is 1% cash back on the total amount of your purchases. For the reward checking, someone who makes 10 debit card purchases that total $20 can get the same level of reward as someone who makes 10 debit card purchases that total $2,000 if both maintained the same checking account balance.

It might seem like this model might not be profitable for the bank. I've looked into the math behind reward checking in 2009 and last year. One thing that helps make it profitable is that the average customer won't maintain the maximum balance that qualifies for the top rate. Many customers will maintain much smaller balances. Also, not everyone will meet the monthly requirements. In short, the reward checking customers who are big spenders with small balances help banks pay for those who don't spend much and maintain the maximum balances.

10 Common Traits of Reward Checking

Now that you understand the basics of reward checking, here are some common traits. For each trait, you'll probably find a few exceptions. I included a few of these. If you know of others, please leave a comment.

  1. Most reward checking accounts are free checking accounts. There is no monthly service charge even if you don't meet the monthly requirements. All BancVue reward checking accounts that I've seen have this trait. However, banks that have made their own version of reward checking sometimes do have potential monthly fees for small balances or if you don't meet the monthly requirements.
  2. Most reward checking accounts don't require a certain dollar amount for purchases. They just require a certain number of purchases per month. Just like for the free checking trait, this trait is very common for the BancVue reward checking accounts. Banks that have their own version are the ones that often have requirements on the purchase amounts. Requirements can be a certain amount per purchase (like at Randolph Bank) or certain amount for the total of monthly purchases (like at The Berkshire Bank). If your bank doesn't have any requirements for the amount of the purchases, it's important to note the banks expect the customer to use the account as their primary checking account. Too many small purchases can get flagged, and the bank has the right to close accounts for any reason.
  3. Most reward checking accounts allow either PIN or signature-based (credit) debit card purchases to count toward the monthly requirements. Some require only signature-based. For the bank, signature-based purchases have the benefit of higher interchange fees. For customers, the benefits of signature-based purchases include not having to remember the PIN and extra fraud protection provided by VISA or MasterCard. The downside is that signature-based purchases take longer to post to your account.
  4. It's common for banks to reduce the availability of their accounts. Many have launched their accounts with nationwide availability. Eventually, most reduce the availability to their state or local market area. This is one reason to get in early. It's rare for banks to close accounts of out-of-state customers. I only know of one example.
  5. Another benefit of getting in early is that some banks have grandfathered existing customers with the original balance cap. One example is Danversbank which kept the $100K balance cap for existing customers while reducing it to $25K for new customers.
  6. It's common for banks to waive the requirements for the first month after the account is opened. This is done since it can take a few weeks for the customer to receive the debit card. If it takes longer, ask your bank for another month waiver.
  7. Banks and credit unions that offer reward checking rarely have good ACH transfer systems. If they do have one, it often has several limitations (like a low transfer limit). However, they shouldn't restrict ACH transfers initiated from another bank. So having an account at an internet bank with a good ACH service (like Ally Bank) can make it easier to use the reward checking account.
  8. ACH transfers initiated by another bank will most always satisfy the direct deposit requirement even if the bank doesn't list ACH as an alternative to direct deposit. This is another reason to have an internet bank. Does anyone know of a reward checking account where an ACH didn't meet the direct deposit requirement?
  9. Some banks will allow you to open multiple reward checking accounts. You still have to meet the monthly requirements for each account. This can be useful if your savings exceeds the balance cap. However, more banks have started implementing limits on the number of accounts. This is another benefit of getting in early. Banks will often grandfather existing customers.
  10. If your bank doesn't allow multiple accounts or if you don't want the hassle of meeting another set of monthly requirements, some banks offer a reward savings account (also called Kasasa Saver). The rate is lower than the reward checking account, but for many cases, it's higher than internet savings account rates. To qualify for this rate, you have to meet the reward checking requirements. Also, most reward savings accounts have balance caps similar to the reward checking caps.

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Comments
23 Comments.
Comment #1 by 51hh posted on
51hh
Great article, Ken, thanks.  To add three more:

11. Some banks provide free starter checks and some (especially credit unions) even provide boxes of checks.  This is a very handy feature, especially when one wants to do rate-hopping.

12. Many credit unions are part of the Shared Branching, which is very convenient.

13. Some banks offer reward status link that provide instant (say within days) reward status vs. RCA requirements.

8
Comment #2 by Anonymous posted on
Anonymous
Thank you for sharing that "small institutions are exempt from the interchange fee caps that will be set by the new regulations".  I did not know that so now I can stop worrying that my RWA will close/end.

2
Comment #8 by tightwad posted on
tightwad
#2 Be aware that most small banks and credit unions use the big banks systems to process your ACH transactions...So don't stop worrying yet, because it still may effect smaller institutions.

4
Comment #3 by Will (anonymous) posted on
Will
Is anyone aware of a bank or credit that union that currently DOESN'T require setting up an automatic, recurring direct deposit in order to qualify for a reward checking account? I don't want to move a direct deposit of my social security income from where it's been deposited by direct deposit am am willing to accept other than a totally "free" checking and am happy, of course, to manually make an ACH transfer montly from another bank/credit union if that will qualify for a reward account.  Every reward checking account I've seen listed seems to require an automatic, recurring direct deposit.  

2
Comment #4 by darkdreamer4u posted on
darkdreamer4u
@Will: even if it says automatic or recurring direct deposit, usually a manual ACH will do just fine. I commonly transfer $4 to each RCA the day after a new reward cycle begins and am done with them (apart from fulfilling the debit card requirements).

4
Comment #5 by adityanm posted on
adityanm
Many RCA will accept any kind of ACH deposit/

2
Comment #6 by Wil posted on
Wil
To Will #3: If you are in the metro NYC area, The Berkshire Bank doesn't require direct deposit or ACH debit. However, it has a minimum balance requirement of $1500 to avoid fees, and the six required debit card uses must total at least $100. Furthermore, the qualifying rate, currently 1.20% APY, is no longer attractive (on the other hand, the rate is guaranteed until Sept. 30, 2011).

3
Comment #7 by Anonymous posted on
Anonymous
Some banks will accept a bill pay transaction in lieu of the ACH. What are are you (Will #3) located in?

2
Comment #9 by Anonymous posted on
Anonymous
Interesting take on how to evaluate in details. What about Fidelity mySmartCash? Anyone has an opinion on this? I'm evaluating this among one of many others.

3
Comment #10 by Will (anonymous) posted on
Will
Thank you Wil #6 and Anonymous $7 for the useful information! After doing a better job of research, I now know there are a number of options for reward checking available to me (I live in North Carolina) that don't require an automatic, recurring direct deposit.

1
Comment #11 by moneysaver posted on
moneysaver
Will, as a veteran of many RCA accounts, I agree generally with the comments posted above... But as for your question, I'd rather put in in reverse. I don't know of ANY RCA accounts that require an actual recurring direct deposit (like a payroll or pension deposit) each month to qualify.

A lot of the banks have been bad (or at the very least very unclear) in how they've listed that requirement in their web sites and account terms. In most cases, a payroll or pension direct deposit would count the same as an ACH transfer. But likewise in most cases, most banks will accept any ACH transfer you do in or out as qualifying as well.

That is the norm, and that's what you'll get with most RCA accounts. So as for the bank that led to your question, it could be that they are very different for some reason and do have that requirement. Or it could be that their language is unclear, and in reality, they're the same as the others and will accept any ACH just fine.

Your only way to find out for sure is perhaps check with a manager there and/or test their system by doing an ACH and seeing what happens.

 

2
Comment #12 by Anonymous posted on
Anonymous
Ken, I have another example of a bank that closed its reward checking accounts for all out-of-state customers. In 2010 First Security Bank and Trust (IA) advertised a 4.01%APY reward checking account available nationwide.  It required extensive documentation to open the account, including notarized copies of identification.  Within a few months, I received notice that the bank was closing all out-of-state reward checking accounts.  This is a case where the bank should never have offered the reward checking out-of-state originally if they were going to turn around and close all those accounts. The paperwork and aggrevation caused by the bank was not worth the few extra dollars in interest.

4
Comment #14 by Anonymous posted on
Anonymous
Ditto, Anonymous #12.  First Security initially stopped new out-of-state from being set up. (I was told that I had gotten in "just under the wire".) However, several months later, I received a notice that they were closing out even the existing out-of-state accounts. I called them to complain that the interest earned didn't even cover the cost of the printed checks I had ordered. To their credit though, they agreed to over the cost of the check printing. 

1
Comment #16 by Anonymous posted on
Anonymous
Great artical!

2
Comment #18 by jv (anonymous) posted on
jv
If you live close a military base look for the nearest C. U.   Fort Sill in Lawton has a 3% rewards cking ... must live in the county though you don't have to be connected w/ the military. Other requirements similar to other reward accounts, $10k limit, 10-15 transactions/month, 1 direct dep. or ACH.

1
Comment #19 by Anonymous posted on
Anonymous
Nowadays, with low interest rates, many RCA are lowering their top tier from $25k to like $15k or so, and balances above that earn much less, like 0.10%. If you don't meet requirements, then you earn less like 0.05%. These RCAs are getting worse, as the banks realize the BankVue products and services are not profitable to the bank.

2
Comment #20 by Washingtonian posted on
Washingtonian
I have 11 accounts paying 3%-4%.  They are available!! I wish someone would post if they have others.
 

Great Lakes Credit Union (IL) 4% -  $10K Allow 3 accounts per SSN. Nationwide Availability.

10 POS, No Pin

$500 - Direct Deposit

1 Billpay

E-statements

Mutual Bank – (MA) 3% 10K Nationwide Availability – New England Online  w Notarized Affadavit Nationally Available

10 POS

ACH  Deposit or Withdrawal

3%

E Statements

Advantis FCU (OR) 3% - $25K – Oregon & Washington

12 POS

ACH  Deposit or Withdrawal

E Statements

1 Log-In

First Financial Bank 3% - $15K – Nationwide

12 POS

E-Statements

I log-In

Hope FCU 3.02% - $10K – Nationwide if donate $5 Hope Charity

12 POS

ACH Deposit or Withdrawal

E-Statements

1 Log-in

Money One FCU (MS) $10 K – Nationwide if donate $20

10 POS

ACH Deposit or Withdrawal

E-Statements

1 Log-in

Harborstone FCU (WA) 3% $20K –  Washington state

12 POS > $3

ACH Deposit or Withdrawal

E-Statements

Prevail CU (WA) 3% $10K - Washington state

10 POS

ACH Deposit or Withdrawal

E-Statements

Community Financial Savings Bank (CFSB) –( KY) 3% $20K Was nationwide, might be regional now.

12 POS

ACH Deposit or Withdrawal

E-Statements

1 Log-in

Consumers CU (CCU) - (IL) 3.09% $5K Nationwide

12 POS, No Pin

ACH  Deposit or Withdrawal

E Statements

1 Log-In

Lake Michigan FCU (WI & IL)  3% $10K Nationwide

12 POS

Direct Deposit

E Statements

4 Log-In

7
Comment #21 by rosie43 posted on
rosie43
To #20 Thanks. One correction Lake Michigan Credit Union still pays to $15,000 I believe. 

1
Comment #22 by timmer79 (anonymous) posted on
timmer79
I'm signing up for one of these banks right now, which should cover my needs.  Is the likelihood of these accounts becoming not available nationally such that I should consider signing up for additional bank accounts with a minimum balance and deal w/ the non-qualifyig interest in case I want to use an additional accounts later or play the odds and increase the chance of being grandfathered in to at least one of these accounts?

3
Comment #23 by KenBDG posted on
KenBDG
In addition to restricting accounts to local market areas, some banks have stopped accepting new applications. This happened for a couple of years at AmericaNet/Evantage/Redneck Banks. So there have been advantages to opening accounts early.

Since most of the reward checking accounts are free, it is easy to open up multiple reward checking accounts. You do have to make sure you regularly conduct some transaction so the accounts don't get labeled as inactive. And of course, having multiple accounts does require more time to monitor.

6
Comment #24 by timmer79 (anonymous) posted on
timmer79
I now have a high-yield reward checking account at a bank with the Kasasa Cash product.  If you were me and going to get a second account at another bank (as I inquired above) would you be more or less inclined to use another bank that is doing Kasasa Cash?  The top 6 deals for me nationally and locally (MO) are very similar, and 4 of them use Kasasa Cash.  In other words, would it make sense to "diversify" to a different type of product in case something happens to the Kasasa Cash program?  Or, do you think that Kasasa is a strong enough product that it might be more likely to be around than a different product?  Also, thanks so much for your 8/20 reply above.  All of this is very helpful!

6
Comment #25 by Anonymous posted on
Anonymous
BofA rewards checking is based on only specific deals offered and there is a time limit. You won't see these offers unless you sign up for alerts.Theirs is not based on number of transactions, or amount spent, this stinks. For two years I thought I was getting rewards for purchases only to find I had nothing.

2
Comment #26 by gli (anonymous) posted on
gli
Comment 25.... So you failed to read and research what the perks (or lack thereof) of the checking account were before you opened it... and not only that, you failed to notice until just now that there was no 'reward' for two years?

Brilliant. Next time read and explore your checking options and all of the fine print - don't be upset with BOA - be upset with yourself for failing to read and for failing to inquire further if you were in any doubt as to what their side offers were.

For as much as some folks here dislike banks and such... customers like this who fail to read basic 'extra' offer opportunities and then grip about it are just as bad.

3