When banks get too much demand for their reward checking accounts, they often limit new accounts to their local market area. However, they rarely close accounts to out-of-state customers. Unfortunately, there was another case of this. A reader reported that he received a letter from Southern Bank informing him that his Kasasa Cash account will be closed at the start of April. He called the bank and spoke with the second in command at the bank and was told that they were reducing the client list to locals and closing the accounts of people outside their footprint. The reader was angered not only by the closure but by the curt and vague letter that excluded a signature and a rationale for the closure.
The reader had opened Southern Bank's reward checking account when the account was available nationwide (when it was Southern Missouri Bank). In early 2009 the bank restricted the account to only residents of MO, AR, TN, KY and IL. Later in 2009, it restricted the account to only residents of MO and AR, the two states where they have branches.
Southern Bank's reward checking account has a history of very competitive rates. It started in 2008 with a 6.01% APY for balances up to $25K. The rates went down, but the yield was still 5.01% for up to $25K until April 2011. It's now 4.01% APY for balances up to $15K.
There have been a few banks that have not only restricted new accounts, but have also forced out existing out-of-state customers. Liberty National Bank in Oklahoma did this last year. They handled it better than Southern Bank. Instead of just closing accounts, they transitioned existing out-of-state reward checking account owners to free checking accounts.
Fortunately, this kind of action by banks has been rare. Most banks have only restricted new customers. Existing customers have been allowed to keep their reward checking accounts.
Instead of targeting out-of-state customers, it has been more common for banks to target customers who aren't using the accounts as "primary" checking accounts. The last bank to do this was Jeff Davis Bank in November.
All of these actions indicate that reward checking accounts may not be as profitable to the banks as they had originally anticipated. A lot of the profitability depends on high debit card usage and low average balances. One credit union which sent me stats said that 12,000 of its members with reward checking accounts spent on average $960 per month with their debit cards and maintained an average balance of $8,400. I would guess most of us savers spend less than this and maintain larger balances. That's why banks need to attract lots of "Average Joes" who aren't savers. When the banks offer accounts online from any state, they probably attract more savers than "Average Joes".
Finding Reward Checking Accounts
There are still several reward checking accounts that are nationally available, but as I described above, you'll probably have better luck if you find one that's local. You can use our reward checking rate table to find both nationwide and local accounts. Refer to this post for details on how to use the rate tables, and refer to my reward checking overview to learn about these accounts.