The Nation's Best Reward Checking Account Slashes Rate from 6.01% to 5.01%


State Bank of Toledo (SBoT) officially slashed the yield on its reward checking account from 6.01% to 5.01% APY. In addition, they've added a $70,000 cap on the balance that earns this top yield. Balances over $70,000 only earn 3.30% APY. Everything else seems to have remained the same as what I reported when I first posted on SBoT in June. It still has typical reward checking requirements.

This reward checking was probably the nation's best reward checking account for two reasons: First, it allowed people in any state to sign up for it without a branch visit. Second, it didn't have a balance cap. Most reward checking accounts had a balance cap of $25,000. Balances over that earned a smaller rate.

I don't think this big rate drop is an indication that reward checking yields are just teasers. The interest rate environment is changing. The Fed has now cut the target Federal funds rate by 1%, and more cuts are expected. The 5.01% yield is now close to many online savings account yields. However, if SBoT keeps this rate for several months, this rate may soon be on top once again.

Based on its history, SBoT hasn't been the type of bank that makes frequent rate changes. So my guess is that they intend to keep this 5.01% valid for the next 6 months at minimum. With the Federal funds rate target now 1% under its peak, 5.01% is basically at the level (relative to the funds rate) as 6.01% was in the summer. As other banks continue to drop their rates, this 5.01% may start to look more attractive. Three months from now, even Countrywide's savings account yield may be under 5%.

There is still the question if reward checking accounts can maintain yields significantly higher than the average online savings account yield. Some think these yields that we've seen with reward checking accounts have essentially been teaser rates. Once these banks attract a lot of customers, they can lower rates without worrying about a mass exodus. Unlike online savings account customers, these reward checking customers have converted their direct deposits and they are now in the habit of using the account debit card. Thus, it's not as easy to leave. So if these reward checking account yields can just stay close to the yields of online savings accounts, it may be good enough for most people.

More Info on High Yield Reward Checking Accounts

For more information on reward checking accounts, please refer to one of these posts: reward checking overview, State Bank of Toledo reward checking overview, list of reward checking accounts around the nation, and the best checking account post.

Thanks to the readers who sent and commented on this rate change.

Update: Removed "for new customers" regarding the rate change.
Anonymous   |     |   Comment #1
in your post you say cut the rate for new customers. Does this mean that existing customers still get the 6.01%, or are we also thrown into the 5.01% $70,000 cap
glxpass (anonymous)   |     |   Comment #2
Per the president of SBoT, for everyone, the 5.01% rate change is effective today and doesn't affect previous interest accrued in the current statement period that's about to end.

For existing customers, the change to the 70K tier will take effect at the statement period that begins on January 15th.

For new customers, my understanding is that the 70K tier takes effect today.
Banking Guy
Banking Guy (anonymous)   |     |   Comment #3
Thanks glxpass for posting this info. I've updated the post. I was hoping they would follow through on their one-month warning on the rate change. At least the new tier is not yet taking effect for existing customers.
Update on State Bank of Toledo and Its Nationally Available 6.01% Reward Checking Account
Update 12/14/07: State Bank of Toledo is now listing a new rate of 5.01% APY for balances up to $70,000. Please see this post for more details.

It has been over 5 months since I first reported on State Bank of Toledo's 6.01% Reward Checking Account. The account continues to pay 6.01% APY on all balances if the typical reward checking requirements are met, and the account continues to be offered nationwide. When I first posted on this account, there were concerns if such a small bank would be able to...

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High-Yield Reward Checking Account at an Iowa Bank (State Bank of Toledo)

Update 5/16/11: The top rate has fallen to 1.51% APY. See bottom of post for the rate history.

State Bank of Toledo is offering a reward checking account called Hometown Reward Checking. It offers 1.51% APY for balances up to $25,000 (0.50% for above) and up to $25 of ATM fee refunds per month if you meet the typical reward checking requirements: 1) 10 check card transactions per month, 2) one direct deposit or ACH auto debit per month, and 3) receive electronic statements. If you don't meet these requirements, the...

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