After more than seven years of offering its reward checking account, called Win/Win Checking, Legacy Bank has added a new requirement. To qualify for the top interest rate (currently 2.00% APY for up to $25,000), customers must now ensure their monthly debit card purchases total at least $250. Previously, the debit card requirement only consisted of making 12 purchases with their debit card. Thanks to the reader who emailed me news of this. Below is the email he received from Legacy Bank about this change:
Federal Regulations and some customer abuse to the Win/Win Checking account have compelled us to make a change to the way interest is paid on the account. Effective March 1, 2015, in order to receive interest on the Win/Win Checking account, customers must use their Legacy Bank VISA® Check Card at least 12 times for purchases of goods or services, AND these transactions must total at least $250.00 each month. As always, the Win/Win Checking account is free. This change simply affects the payment of interest. The solution to receiving the interest is easy; simply use the account and your card as your primary checking account, making sure that those 12 transactions total at least $250 per month. Thank you for being a Legacy Bank customer.
I assume "customer abuse to the Win/Win Checking account" is too many small debit card purchases. That would explain the new $250 total purchase requirement. The average debit card purchase will now have to be at least $20.84. That may be an issue for those who have multiple reward checking accounts or for those who use cashback credit cards for the big purchases.
For many years we’ve seen banks and credit unions push their reward checking customers into making larger debit card purchases. Some have sent customers letters warning them that they were making too many small purchases and that they weren’t using the account in the true spirit of the program. I reported on several of these cases back in 2009.
Why do banks care about our debit card purchases? Banks and credit unions earn fees for each debit card purchase you make. This is called interchange fees, and a fee of 1% appears to be a good assumption for the average interchange fee for a debit card used in a signature-based purchase (the fee is lower for PIN-based purchases). Since the fee is proportional to the amount of the purchase, banks make more money when we make larger debit card purchases. At least with reward checking accounts, some of those interchange fees received by the bank are used to help pay the reward checking interest.
It might seem all banks would implement a total purchase requirement on their reward checking accounts. A few banks and credit unions have done this, but most have not. The FDIC has ruled against a total purchase requirement. A 2007 FDIC bulletin details what is allowed and not allowed, and according to this bulletin, "Banks may not require that transactions be of a certain dollar value (individually or in aggregate)." Perhaps the FDIC has changed its mind? Legacy Bank’s notice appears to suggest a change in federal regulations. I found this 2012 FDIC notice to banks summarizing the rules for high-yield checking accounts. I did not see anything against total purchase requirements.
Even without total debit card purchase requirements, the value of reward checking accounts has diminished in the last several years as interest rates and balance caps have dropped. Reward checking accounts can still be a good deal as a free checking account, but in my opinion, they have become less useful as an alternative to internet savings accounts.
If you’re new to reward checking, please refer to my article on the 10 Common Traits of High-Yield Reward Checking Accounts.