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Close Or Keep Open A Rewards Checking Account When Rate Drops?

Sunday, March 6, 2011 - 2:44 PM
I have at least two RCA accounts whose rates have dropped significantly. I've moved most of my money out of these accounts and transferred them to others paying better rates. These accounts are no longer available nationally so if I were to close the account, I couldn't just apply and get back in. It is a hassle to maintain the lower rate (i.e. debits). I would like to know what others are doing - keep the old accounts open in hopes that rates will rise when interest rates start coming back up or just close it? Thanks.
8
76776719 posts since
Sep 20, 2010
Rep Points: 133
1. Sunday, March 6, 2011 - 3:40 PM
I have 4 reward checking accounts. My first paid 6% until a year or 2  ago Jan. It is now 2.5%. It does not require a direct deposit and the credit card payment debited each month from the account can be used as an alternative to the direct deposit. I use the debit card about 5-7 times each time I go out. I use it to pay the tax on the free items I get at Walgreen's, a loaf of bread or milk from my grocery store, anything cheap that I use a coupon for at Wal-Mart (usually less than a dollar), $1 or $2 at the  gas station and then sometimes I purchase a salad for my lunch or dinner and turn around and do it again on the way home. The stores are all located with in a half mile and it very easy to do and takes 15 minutes. Some of my debits are 3 cents. There has never been a problem I receive about $250 a month in interest from the checking accounts and it is worth an hour or hour and 30 minutes a month to do this to me. I probably would make about $70 or less a month if it was in a savings account. This is emergency money and I am going to use some to buy a new car soon. It is worth the time to me. I look it as I earn $180 a hour and maybe use a 1/2 gallon of gas  4 times a month to do this. Plus I don't have to fix lunch.
3
Ally6770Ally6770912 posts since
Jan 16, 2010
Rep Points: 2,655
2. Sunday, March 6, 2011 - 3:50 PM
Given the extremely unstable nature of these accounts, I keep them open.

My spreadsheet shows them all sorted by rate, then the cap in each account. When a rate changes (up or down), then go to the lowest account that has money in it, and billpay it to the better account. Billpay avoids losing a week's interest that you get from using ACH. In fact billpay lets you overlap interest payments, so if you billpay on a Monday, typically the bank receives it on a Friday and both accounts show the balance all weekend. Double interest! And most billpays don't have arbitrary limits on the amount you can pay either. Of course the downside is bank hold on $5k+ checks, but you typically get access to the first $100 quickly which is all you need to qualify for the month.

You can then do the required monthly ACH to 'fix' the account and bring it back exactly to the cap.

To avoid any idle account fees, I do a quick ACH every month or two of a minimal amount to keep the account 'active' even if I'm not actively using it.
4
AtlantaWolfAtlantaWolf40 posts since
Jan 16, 2010
Rep Points: 187
3. Sunday, March 6, 2011 - 5:04 PM
There are issues either to keep the "old" low-rate accounts open or to close them:

Open:

Watch out for inactivity fee; and fraudulent exposure (i.e., need to examine accounts frequently).

Close:

Watch out for early closure fee (some set it at six month) and loss of interest if closed un-scheduledly.

I close many accounts since once the RCA falls out of the elite group, it seldom (or never) comes back and since it is a real drag to keep too many accounts.  I still keep some open for a specific reason; e.g., Rockland keeps giving me high rate (3%) without my meeting any requirements; I paid a fee (joining a museum) to get into Marines FCU; I still use Danvers as a primary checking account for Billpay and the grandfathered limit of $50K (at 3% APY). 
4
51hh51hh1,476 posts since
Jan 16, 2010
Rep Points: 6,426
4. Sunday, March 6, 2011 - 11:15 PM
I don't close them - if/when economic conditions improve, the terms could become favorable again.  Example:  One institution (A) lowered rates in January, and I moved all but $10 in each account to another (B).  As a result of changes (B) will make soon, I will move some money back to (A), where I am grandfathered with privileges no longer available to new accountholders.  Had I severed my relationship with (A) 2 months ago, I would be returning in a weaker position.

With dormant RCAs, I keep $10 in the accounts, make an occasional transaction and essentially let them default to "free checking" mode, thus also addressing the inactivity/dormancy issue. 

51hh mentioned the fraudulent exposure concern, which is relevant regardless of how much is on deposit.  I check active RCAs daily, and dormant ones weekly.  For all accounts, I also activate any relevant alerts (typically balance-related ones) to let me know if/when there is activity.  It can mean a flood of Emails after a day of shopping, but Emails can be deleted easily.

51hh also mentioned membership fees as another reason to consider leaving an account open.  That is another important factor, especially relevant for accounts at credit unions.  Generally, if you are not part of a credit union's field of membership but join  through association with some other organization (example:  joining Alliant CU by being a member of your local PTA) you can continue to be a member of the credit union even if you do not renew your membership in the association (once a member always a member).    If you close your account and sever all ties to the CU, should you change your mind at a later date, you will have to re-qualify. 

PB
4
pearlbrownpearlbrown1,433 posts since
Nov 2, 2010
Rep Points: 6,255
5. Monday, March 7, 2011 - 9:40 AM
To Atlantawolf.

When I use Bill Pay they mail a check and the money is deducted right away. I only did it once. I do have my credit card bill debited from this reward account and the bill is marked paid on the due date but the money is not deducted from my RCA  until 5 days later. This payment is initiated by the credit card company after I signed papers to allow them to do it.
2
Ally6770Ally6770912 posts since
Jan 16, 2010
Rep Points: 2,655
6. Monday, March 7, 2011 - 6:08 PM
I generally keep my rewards checking accounts open even after they cease to be useful. As someone posted above, these things are constantly changing, and what is an uncompetitive account today may become competitive in the future if everyone else drops rates to where they are (or lower). All of the RCAs I have are a free checking account if the requirements aren't met, so I don't have to worry about debit card usage or anything else on the 'dormant' ones.  I do transfer out all but $1 to limit my exposure in case there is fraudulent activity on the accounts.

Also, I have occassionally found nice bonuses from these dormant accounts. For example I still have a Malvern Federal account that hasn't been competitive in years, but I kept it open. Much to my surprise I logged in one day and found an offer to pay me $1 for each bill payment I made in the next month, up to $20. I transferred in some money and made 20 small bill payments, and got $20. Then I let the account sit for a while, and got another offer to get $10 for making three bill payments in the following month. Again, I did this and collected the bonus cash. I'm currently experimenting to see how long I have to let the account sit unused before getting another bonus offer.
3
brandon2brandon26 posts since
Mar 7, 2011
Rep Points: 30
7. Tuesday, June 7, 2011 - 2:24 AM
How do you Billpay from one account to another?  Sorry I'm a noob!
1
mikesay98mikesay981 posts since
Jun 7, 2011
Rep Points: 1
8. Tuesday, June 7, 2011 - 7:47 AM
Go online and look up the mailing address for your bank. Bigger banks have a separate address to mail in deposits, smaller banks you can just send it right to the branch.

You can then sign in to your current bank, add a new payee using the address from above and your account number.

I always test it with a small amount (say $10) to make sure it works, to see how long it takes, and whether the amount is deducted from your account immediately or when the check is cashed by the receiving bank. I like accounts that don't debit until the check is received so I can transfer money with no lost interest.

The receiving bank might put a hold on those funds, so you may not be able to withdraw the money immediately.

The final caveat is that some banks charge for online billpay (rare, but some do), or charge if you exceed a limited number of billpay transactions (typically 20 in a given cycle).
3
AtlantaWolfAtlantaWolf40 posts since
Jan 16, 2010
Rep Points: 187
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