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.