Can Reward Checking Remain a Good Alternative to Internet Banks?
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:
- Capital Bank in Georgia launched Kasasa Cash that offers 2.01% APY for balances up to $10K (0.75% over) as of 2/16/2012.
- Noble Bank & Trust, N.A. in Alabama launched Kasasa Cash that offers 0.80% APY for balances up to $40K (0.25% over) as of 2/16/2012.
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.