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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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Customer Kicked Out of a Bank's Reward Checking Account

POSTED ON BY

One problem with reward checking accounts is that banks need their customers to be big spenders on the debit cards to be able to afford paying the high interest rates. Banks make a profit of about 1% on the amount their customers spend on debit cards. This is from the hidden debit card interchange fees that retailers pay. The fee is capped now for large banks due to the new debit card regulation, but it's not capped for small banks.

The company that powers most reward checking accounts, BancVue, maintains that regulation prohibits banks from requiring customers to make debit card purchases of certain values. There is in fact an FDIC bulletin that says "Banks may not require that transactions be of a certain dollar value (individually or in aggregate)." There are some banks that do require customers to make purchases of a certain amount to qualify for the high yields. However, these banks appear to be the ones that have created their own reward checking accounts without the help of BancVue. They probably either don't know about this FDIC rule or think they can get away with it.

So if a bank wants to follow the rules, the only way they can force higher debit card spending is by warning customers that they expect them to use the account as their primary checking account. We have seen banks do this several times over the years. I posted on one example over two years ago when City National Bank warned a customer who wasn't using the account in the "true spirit of our program".

The latest example of a bank "forcing" more debit card spending is Jeff Davis Bank. A reader just posted in the comments the message he received from Jeff Davis:

Kasasa Account Holder,

It has been brought to our attention that you currently have a Kasasa Cash account in which your spending behavior does not reflect the true spirit of the account. We began offering this account to allow our customers to earn interest stemming from the money Jeff Davis Bank would save through our Kasasa accounts. Unfortunately, some accounts have only been opened to take advantage of our interest rates and are not being used as a checking account.

Due to these circumstances, we will now switch your Kasasa account to a non-interest bearing free checking account on November 30, 2011.

We sincerely appreciate your business and we hope to continue to serve you in the future. If you have any questions please call 1-800-789-5159.

Thank you, Jeff Davis Bank

It would be interesting to know how much per month the commenter was spending with his or her debit card. For the case of City National Bank, the customer received the warning email with spending about $30 per month. At least with City National Bank, they just sent a warning. The bank didn't kick the customer out of the account. However, City National Bank's reward checking account did go down hill. The rate is now only 0.45% for all balances.

Jeff Davis Bank's reward checking account has also gone down hill. The top rate is now 3.25% APY for balances up to $10K. In my last review of the account in January, it was paying 4.01% APY for up to $15K.

Is it being fair to the bank to only make small purchases with your reward checking debit card? It does seem unfair to me for the bank to close or switch accounts without warning when the customer isn't spending enough to meet the vague "true spirit of the account." One reader had the following comment of this:

People who use reward checking accounts in accordance with the TOS are not abusing the accounts. Ten transactions is ten transactions. One dollar each? That's all within their TOS.

However, another reader provided this sensible advice:

To put it in perspective, if you do $100/month in debit card transactions that you would instead normally do on your credit card, you will lose $1-$2 per month in rewards (assuming the typical 1-2% reward), but you will keep a high interest rate on your full reward checking balance and not risk getting your account closed. Seems like an easy call.

Spending around $100 a month appears to be high enough to prevent banks from closing accounts. If your account has been closed or switched, how much were you spending?

Even though spending $100 a month may be enough to prevent banks from getting mad at you, it may not be enough to be helpful in keeping the interest rates high. Fortunately, the "average Joe" does spend quite a bit with their debit cards. One credit union sent me stats for their reward checking account. About 12,000 of their members have this account, and on average they spend $960 per month with their debit cards. I didn't receive details on how much they get from the interchange fees, but if you assume 1%, that means the credit union gets $9.60 per month per member from this fee. Members maintain an average balance of $8,400. The $9.60 per month comes out to $115.20 per year. So if the credit union returns all of the $115.20 to members as an extra interest rate on the checking account, that comes out to an interest rate of 1.37% (100 x $115.20 / $8,400).

The nice thing about reward checking is that it's favorable to savers rather than spenders. Those who spend more and keep smaller balances help subsidize the savers who spend less and have larger balances. It helps a little bit in making up for the Fed's monetary policy in which the zero rates subsidize borrowers at the expense of savers.

Searching for Reward Checking Accounts

For more information and tips on reward checking accounts, please refer to my post 10 Common Traits of High-Yield Reward Checking Accounts.

We still have a few nationwide reward checking accounts that pay 2.00% or more on balances up to $25K. However, there are many better local deals with some paying as much as 4.00% on balances up to $25K. To find these accounts, please refer to the reward checking section of DepositAccounts.com. Remember to select the "Filter Accounts" button to find those available in your state.


  Tags: JD Bank, checking account

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Comments
36 comments.
Comment #1 by Anonymous posted on
Anonymous
Reading this article, I wonder how much each saver spends per month for each of his/her reward checking account (he/she may have more than one accounts). What about setting up a poll for the question? Also, thank you for your wonderful site. I read it everyday.

 

3
Comment #2 by Anonymous posted on
Anonymous
I spend $60-100 each month and make at least 2 extra purchases on top of the minumum transactions required.

4
Comment #3 by pdxmale posted on
pdxmale
I try to debit about $200.00 plus or minus per account each month.

I also alternate a small charge (1,00 ish to a utility such as Comcast or AT&T) with a regular charge.

I have never had a problem with any of the RCAs, and I have 12 active accounts with the MAX balance in each one.

3
Comment #4 by Anonymous posted on
Anonymous
I think that it is really awesome that things like RCA are even out there for the customer.  When you look at what the national banks are doing in terms of charging fees - it's seems like a no-brainer to switch to a bank that is willing to pay you as opposed to charge you.

So - witht that being said - I hope that few people would try to take advantage of these awesome RCAs. No sense in having a few bad apples ruin it for all of us. I have no problem with the bank kicking out people like that.

4
Comment #5 by scottj posted on
scottj
Count me as another who is happy banks are kicking people out, thats much better than them just stopping to offer the rewards accounts.  From other sites I still see people doing the pay a bill in $1 increments and thats clearly against the "true spirit of the account". I try and average my monthly charges to the amount of interest I get which is around $240-$250 a month. This way the account always stays right around the max

4
Comment #6 by Anonymous posted on
Anonymous
I have many kasasa accounts and spend about $50 or $100 on each of them. I almost wanted to ask Jeff Davis bank how I got caught to avoid getting kicked out of my other much higher limit kasasa accounts.

4
Comment #7 by Anonymous posted on
Anonymous
I'm using like less than $10 each month.

At gas station, pump for .50, or at drug store photo print for .20. etc.

Everything I spent is less than one dollar... I might be tricked later...

3
Comment #8 by Buddtaoist posted on
Buddtaoist
To pdxmale: You mean you have 12 accounts with debit of $200/month at least. If each acccount requires 10 debit card purchase, you can manage (12x10)120 times purchases with your debit cards each single month. And it is at least $2400 spending in stores. How can you make it?  There must be a lot of people like me who wants to know about it. 

3
Comment #9 by RJM posted on
RJM
I have 2 RCAs, each require 12 purchases. One requires that all 12 be used as "credit".

The bulk of my transactions are below 10 cents at gas stations, but I will occasionally use them at the dollar store or for a $2-3 purchase.

Havent been threatened, warned or kicked out but wouldnt be suprised if I was.

3
Comment #10 by pdxmale posted on
pdxmale
I said that I TRY for $200.00 each account, I didn't say AT LEAST. You misquoted me.

I need to do a min. of 136 debits a month to meet the requirements of the 12 accounts.

When I go to the  store, I split the cart into 2 purchases on 2 differant cards. I then put a $1.00 (or so) utility bill charge on those cards when I get home. If I am shopping with my wife --it becomes 4 charges and then 4 more when I get home.

I pay whatever bills I can with the cards -- splitting the payments if possible -- and following each with a $1.00ish payment to the utility.

When we eat out - we get seperate checks.

I never have any problem getting the 136 debits, in fact usually find that I could do more.

I seldom buy anything that I wouldn't if I were paying in cash.

And, YES I spend between $2K and $3k per month (avg. about $2200). I earn over just $900.. per month in interest, so my NET spending is under $2K,

My RCA's range from a high of 5.01% to a low of 4.07% and I have some $260k in them, I can't get an average return of 4.3659% anywhere else.

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Comment #11 by playcentric (anonymous) posted on
playcentric
pdxmale - thanks for sharing.  lots learned from you.  my best RCA earns 3% and I live in TX  where do you get those 4% ?

2
Comment #12 by pdxmale posted on
pdxmale
I can refer you to a 4.09% and it offers a $50.00 cash bonus too. INFO?

Email me      pdx2iah@aol.com

1
Comment #13 by Ricochet posted on
Ricochet
pdxmale,,,,

Dude how many darn threads you going to post that in??

buy an ad space!

7
Comment #14 by dunker posted on
dunker
To Anon #7 and RJM,

You must both be real proud of yourselves in the way you sucessfully "rip off" banks by making under $1 purchases at gas stations and convenience stores.  And I'm sure you'll argue, "I'm just playing by the rules and meeting the qualification requirements set by the bank."

RCAs are the last place left where we can earn better than a measly one percent on our deposits, and because of Dodd-Frank, banks are getting squeezed worse than in the past. As rates and caps continue to shrink, I have to believe that banks look at clients who treat their generosity the way you two do and wonder if it's worth continuing to offer RCAs.

Hopefully, before they do drop RCAs altogether or continue to lower rates and caps, they'll make minimum purchase requirements (either by purchase or per month) or else tell clients like you that they'll no longer keep you as a RCA client unless you start spending a reasonable amount each month.

For myself, I try to spend at least $200/month in debit card purchases on each of four RCAs in exchange for earning about $180/month in interest.

5
Comment #15 by Anonymous posted on
Anonymous
To No. 10 --- I say bravo!!!!!!!!!!   Unfortunately, I don't have the time or the patience to do what you do, but I give you lots of credit.   One really has to be motivated to do this and you are.   Therefore, you do earn the rewards.   Your conscious effort at earning the best possible rate and amount of interest serves as an example to some other savers, even if they don't the high balances that you do, to see what can be done.  Again, you deserve lots of credit.

3
Comment #16 by Anonymous posted on
Anonymous
I received the same letter.  All of my charges were over $1, I totaled about $25-30 per month.  I even wrote a check or two, but not regularly because I dont write many checks.  What i did last month which may have caused the problem is that i had a  charge the same merchant 2 times with 2 merchants.  but didnt think that should have been enough to kick me out.  I think it has more to do with me being out of state.  when I origionally signed up, it was available nationally.  It was later restricted to those within the area. so I think they were just looking for a reason to kick those out of state out.

Liberty national simply discontinued their rewrad program for anyone out of state and tried to hide it in their wording that they were discontinuing it for everyone, It looks like Jeff davis may be trying to do the same thing individually, if they dont make enough money off of you

3
Comment #17 by Anonymous posted on
Anonymous
pdxmale-wow.....what a tightwad. Cheap people like you annoy me.

7
Comment #19 by 51hh posted on
51hh
Folks, please be fair, courteous, and balanced.

Each one has his/her own RCA situations; nobody is qualfied to make a blanket criticizing statement against others.

Just give your own RCA situation and how you meet the debit card transactions requirement as a useful reference. 

Two points:

1. Many banks/credit unions do not really care about the amount of the debit card transactions.  For those who care, they usually set up a minimum amount (say $5 or $10) to be fair to both themselves and the customers.

2. For a few that are fussy, they insist on using RCA as primary checking without any definitions.  I usually shy away from those people.

Again, this is not a bragging or critizing forum.  It should hopefully be a constructive forum that people can get some knowledge/experience in the financial realm.

For my own situation, I simply have too many RCAs to make a generous debit card transactions for all of them.  I try to at least reward those 4% club members well with large debit card transactions (say $200 amonth).  For others, I usually make $5 (or above) debit card transactions.  For each RCAs, I always do 3-4 more debit transactions than necessary.  So far (for 5-6 years), I was warned by only one bank to change my spending pattern to fit their primary checking mode.  I bailed out of that one pretty quickly (they dropped their rate anyway). 

Peace.

8
Comment #22 by Anonymous posted on
Anonymous
I generally spend less than $20, charges are typical from $1 to $2.

 

 

2
Comment #23 by Anonymous posted on
Anonymous
I don't blame banks one bit for throwing out the ones that abuse the RCA's......they make it too expensive to keep these promotions and ruin it for people that can actually benefit from them.

I know this type of cheap people. I see them lurking at farmer's markets helping themselves to free samples.....or stalking can recycle areas of grocery stores. They sift through the discarded cans and bottles hoping somebody left ones they can collect on.  It's fun to catch them.....usually a nasty look makes them slither away to their hovel.

9
Comment #24 by Anonymous posted on
Anonymous
i spend under $1 per account.

2
Comment #25 by Anonymous posted on
Anonymous
The RCAs should set a minimum of $5.  I'm not sure why so many "savers" are obsessed with having all their money in liquid bank accounts.  Some diversification probably wouldn't hurt.

1
Comment #26 by 51hh posted on
51hh
#25: We came a long way since the 6% savings rate 6-7 years ago.  Now RCA is the only place that earns 3-4% without locking in the fund for a long time (e.g., CDs).  I would like to diversify if there were an alternative to RCA with liquidity and no risk on principal.

Please let us know if you have such an option.

2
Comment #27 by Tom (anonymous) posted on
Tom
The rest of the FDIC bulletin makes clear that the real problem is that some banks are eliminating interest.  That's why the bulletin refers to banks that "condition the earning of interest on these criteria in violation of Regulation DD" (emphasis mine) and states that a bank "may not completely eliminate the payment of interest on interest bearing accounts for not meeting these specific requirements."

An interest-paying checking account ceases to be an interest-paying checking account if you pay 0 interest if certain conditions are not met ("Truth in Savings").  But if you pay 0.01%, that's perfectly fine.  Frankly, I'm surprised that some banks bother to take non-qualifying accounts all the way down to zero.  0.00%, 0.01%, what's the difference?  It's just $2.50 of extra interest for a whole year on $25k.

The prohibition on dollar-amount requirements appears to be a novel interpretation that may not stand up in court.  So long as they pay some amount of interest for nonqualifying accounts, this should be perfectly fine.

2
Comment #28 by dbl118 posted on
dbl118
The banks don't have a problem with lowering their interest rates whenever they feel like it.  The amount I spend per month is a calculated decision with the goal being to spend the smallest amount possible without drawing too much suspicion.  I certainly don't care if the bank is losing money off of me just as they don't care about the other customer that is losing money off of them.  I spend about $30 a month. 

The extent of my ethics with banks is I do not like to open up checking accounts for bonuses with smaller community banks. 

1
Comment #29 by Anonymous posted on
Anonymous
I'd much rather the banks cut off the few cheapskates who are taking the RCA terms of service to ridiculous extremes than punish all the rest of us to compensate. Good for the banks if this means that they will let me continue to receive 3% or 4% interest with reasonable debit card use!

4
Comment #30 by BluBaroness posted on
BluBaroness
 Gold Star to Bank of the Sierra (& our Blog Man for cluing me in to Sierra's RCA a while back)!!

 I need to keep purchases lo as income is limited & I buy for one. No warning letters yet. 

 I, too, have multiple RCA accounts & have trapped myself into getting piddly interest by missing post-by dates & # of debits.

Out of the sweet blue, I got a letter in early November from Bank of the Sierra. They decided, with no complaint from me, to boost my interest to the full % over the course of my account for debits that were pending on their post-by date, which previously slashed my interest.

This added add over $90 in interest to my account! 

YEAH Bank of the Sierra!

3
Comment #31 by pdxmale posted on
pdxmale
I got the same thing from them and $84.00.

The letter said that they had undercalculater the interest on accounts and were rectifying it.

Compare that to the actions of the MEGA BANKS

2
Comment #32 by RJM posted on
RJM
I feel worse for the gas station I do my small charges at then the banks.

If they kick me out, fine. I will go on to the next deal.

I use my real rewards cards for other purchases. Im not giving up that 1.5-5% except on purchases under $3.

I dont care what the dunker says. I dunked when I was younger. Not sure I can still touch the rim.

2
Comment #33 by RJM posted on
RJM
pdxmale - #10

Very impressed with your work.

However, I would argue that your yield is not really 4.36% if you pay yourself a small wage for your time.

Finally, do you really need that much liquid ?  I ask myself the same question.

3
Comment #36 by Anonymous posted on
Anonymous
I, too, was kicked out of Jeff Davis Bank's reward account for my "spending behavior", and switched to a non-interest bearing checking account.  I sent a complain letter and the branch's assist. VP (matthewg@jdbank.com) responded: 

"Again, we are not changing your account because you failed to meet any guidelines.  Rather, we feel that the account's benefits have been abused and that your account is not
being used as a primary checking account."

To which I responded, "Your website clearly describes the Kasasa Cash account as being 'your cash so you should benefit the most from it. Just you getting the most for your money, every month.'  This is what I have been attempting to do every month, so I feel I should not be penalized for this.  On your website, I did not see a requirement of using this account as a 'primary' checking account."

 

 

2
Comment #37 by Anonymous posted on
Anonymous
Now after getting all my money out of Jeff Davis since I do not need an out of state free checking 0% interest account they keep telling me they want me to keep it open for any transactions that may post. I told them to close my account, can they still transfer the kasasa to a different type of account after me contacting them in an email telling them to close the account and do not open a new account?

3