In my 2010 poll I asked what's the minimum yield a reward checking account has to offer to be worthwhile. For those who are primarily concerned with the best interest rates for their liquid accounts, reward checking is only worthwhile if it offers significantly higher rates than savings accounts. The rate spread between the savings account and reward checking account has to be high enough to justify the extra work that reward checking requires. In 2010, only 10% of those who took the poll selected a minimum yield below 3%. Most everyone wanted a yield of at least 3%.
Rates have continued to fall over the last two years for both reward checking accounts and internet savings accounts. Unfortunately, it's now much more difficult to find reward checking accounts with a top yield of at least 3.00% for balances of at least $25,000. The highest yield on a reward checking account that's nationally available is only 2.52% at ABCO Federal Credit Union (as of 6/1/2012). Most of these nationally available reward checking accounts have yields between 1.00% and 2.00%. With several internet savings accounts with yields around 1.00%, the advantages of these reward checking accounts are diminishing.
If your reward checking account can pay a rate 1% more than your internet savings account, that will earn you an extra $250 for a $25K balance over a year. So if your internet savings account pays 0.80%, perhaps a reward checking rate between 1% and 2% may be worthwhile to you.
So my poll question for today is a repeat of the 2010 poll question: What's the minimum yield a reward checking account has to offer to be worthwhile? Assume that the balance cap is $25,000. Have you lowered your expectations for reward checking since 2010?
Future of Reward Checking Accounts?
There were some rumors that the FDIC was adding new restrictions on reward checking accounts, but as I described in my recent post, I have found no evidence of this. Reward checking accounts have been around for over 5 years, and banks and credit unions continue to come out with new reward checking accounts. Of course, rates and balance caps are lower than what they used to be, and some no longer provide a significant advantage over the best internet savings accounts. However, it should be remembered that most of these are free checking accounts with ATM fee reimbursements. So even if you don't use a reward checking account as a savings account, you may still want to use it as a local free checking account.
For an overview of reward checking accounts, please refer to my blog post, 10 Common Traits of High-Yield Reward Checking.