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Can Reward Checking Remain a Good Alternative to Internet Banks?

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Banks are still launching new reward checking accounts. They don't seem to be as common as when interest rates were higher, but new ones are coming out. Some of the new ones have the Kasasa brand name. The company that powers most of the reward checking accounts, BancVue, launched Kasasa in 2009, and it's still going strong. Netbanker reviewed the Kasasa strategy in this January post, and he's optimistic about its success:

But what I didn't expect was to come home believing its Kasasa strategy might really work. Kasasa launched at FinovateFall 2009 (video here) and is the first major attempt to create a nationwide brand around the checking account. They are trying to do for checking what Visa/MasterCard did for the credit card or what Intel did for PC manufacturers with "Intel inside."

From the Kasasa blog, I found two banks that have launched Kasasa accounts in the last month:

It's nice to see these new reward checking accounts, but I'm a little disappointed about the rates and balance caps. Capital Bank's $10K balance cap is low. I much prefer a $25K cap. Noble Bank's $40K balance cap is nice, but the rate of 0.80% is low. I like to see reward checking rates higher than what's available from internet savings accounts (the best is currently 1.15% APY). My guess is that these banks have decided to be conservative in the launch of these accounts. If they get too many deposits and the customers don't spend enough with their debit cards, that might force the banks to lower the rates which would be very disappointing for the customers.

Update 2/17/2012: CNN just published an article on Kasasa, Community banks team up to fight the megabanks.

I first started to report on reward checking in 2006. According to the BancVue website, over 700 banks and credit unions have reward checking accounts or similar products. It's safe to say that reward checking is here to stay. The main question for savers is if it can remain a good alternative to the internet banks. Savers have two basic choices:

  • Maintain a checking and savings account at an internet bank like Ally Bank, ING Direct or Incredible Bank (or an internet-bank-like Alliant Credit Union). These banks offer competitive yields and make it easy to use ATMs. Instead of using the debit cards from these banks, use a cash back credit card.
  • Maintain a reward checking account which offers a top rate and ATM fee refunds. Use the bank's debit card for most of your purchases to meet the monthly requirements.

Reward checking may offer a better value than what the megabanks offer, but unless they keep the rates and balance caps up, it's a hard sell when compared to the internet banks. In this 2010 poll I asked what's the minimum reward checking rate that would make the account worthwhile. Only 10% of those who responded said a rate under 3.00% would be worthwhile. In my own opinion, reward checking has to pay at least one percentage point over my internet savings account for it to be worthwhile.

Finding the Best Reward Checking Account

If you're new to reward checking, my post on the common reward checking traits should be useful. To compare reward checking accounts based on interest rates and balance caps, you can use our reward checking rate table. Refer to this post for details on how to use the rate tables.

  Tags: checking account

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10 comments.
Comment #1 by Anonymous posted on
Anonymous
When I opened up a Kasasa reward checking account with Liberty National Bank of OK it was available to anyone.  Then, LNBOK said that Kasasa was limiting the customer base to OK and TX, and they were going to convert the reward checking account to a regualar checking account.  Existing customers were disconinued from KASASA, but it was not KASASA fault, but rather LNBOK who decided to cancel those existing out of area accounts.  As it turned out, it really didnt matter because the interest rate went south shortly after my reward checking account was closed. But I think it is interesting that the bank was putting the responsibility on KASASA for the change rather than their own change in bank strategy. 

A reward checking account ceases to be a reward unless the interest rate is significantly higher than the going rate. I wish I had just locked into long term CDs over the last 3 years rather than chasing rates on reward checking accounts that kept falling faster than you could keep up with the changes.  I don't use ATMs so that benefit is wasted on me. I am hoping that some banks/credit unions like Consumers CU will continue offering reward checking accts with higher interest rates  to encourage keeping our money there, rather than shifting to MM/interest checking accounts and CDs, but I am not holding much hope for that in the future.

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Comment #2 by MichaelM (anonymous) posted on
MichaelM
One thing that Kasasa/BancVue has going for it is the CEO, Gabe Krajicek, who is a real advocate for the little guy. I interviewed Gabe about two years ago while writing an article for the Move Your Money project at Huffington Post. For over an hour, I peppered him with questions about the BancVue approach, and it was clear to me that he is in this for the long haul. I know that Kasasa still has a couple of items in the works to enhance their product value, so I don't think the Kasasa brand will disappear easily, though it might have done better with a snappier name.

Gabe is blessed with a huge amount of enthusiasm for what he is doing: educating customers about the merits of doing business with local bankers/CUs. This is a tough sell for the many millions who think having a Chase ATM on every corner is a *good* thing.

As part of my research for the Move Your Money stories/movement, I've opened about fifteen reward accounts over the past two years. About half of those were Kasasa-branded, and the only advantage I saw was that all of the Kasasa bank accounts could be opened through the Kasasa website in a more-or-less similar fashion. Curiously, some of those Kasasa banks managed to open accounts with absolutely no paper involved; others sent reams of documentation in the mail, mostly forms provided by Wolters-Kluwer. Several sent *handwritten* thank-you notes to tell me how much they appreciated my business. On the downside, one terminated my account because my ACH transfer wasn't an employer-initiated direct deposit. My discussion with the bank's CEO about where he found the definition for "ACH transfer" was a waste of time until he hung up on me.

I still use the reward accounts that are paying better than 2 percent. Since the first of 2011, I've earned an average of $150 each month. So while we can all agree that it would sure be great if reward checking accounts paid higher interest rates than they do, having a bank pay me every month beats out paying the bank.

Though I've preached this message to many dozens of friends and relatives, all but two concluded that it was simpler to do nothing at all and just keep paying fees to the bank they already use. (For the literati among your readers, I played Benjamin the Donkey in our high school's dramatic reading of George Orwell's "Animal Farm.")

If Gabe gets his online banking project out of development soon, he may become a force with which to be reckoned. I have no ties to BancVue, but I'm cheering them on.

 

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Comment #4 by jujubee posted on
jujubee
How can you send a PM to "Anonymous"??

1
Comment #5 by Anonymous posted on
Anonymous
Ignore #3... He is psychotic and a leech on this site.

3
Comment #8 by Anonymous posted on
Anonymous
I don't think pdx is psychotic, although eliminating the bold print would be nice.

It's not a bad deal...he get $28 or something for doing very little if you open an account, and you get $72.  You get a 4% back which you aren't getting elsewhere.  For me it's not worth it, the 10K is too low to be worth the effort since I don't naturally use debit cards and I average far more than 4% (non taxed)off of credit cards because of bonuses, but this is a good deal for some people.  If they raised it to 15K and extended the date through the end of 2012 I'd probably bite, but I would still not use it as my regular card. 

1
Comment #10 by MichaelM (anonymous) posted on
MichaelM
For those more interested in the discussion of the main topic (reward checking) rather than the side issue of PDXMALE trying to tiwst your arm--

There is an interesting article about Kasasa in CNN's Money Section today (17 Feb 2012), available at this link:

http://money.cnn.com/2012/02/17/smallbusiness/community_banks_kasasa/?source=cnn_bin

1