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Banks Reducing Nationwide Availability of Reward Checking Accounts and Discouraging Small Debit Card Purchases


A reader sent me email today about being informed by Citizens Bank Minnesota that they're no longer accepting out-of-state customers for their reward checking accounts. Also, the banking rep told him that they may close existing accounts for what they consider abuses such as many small debit card charges or 9-cent online payments. I first reported on this reward checking account in February.

Just a few days ago readers reported that Arizona Bank & Trust also decided to end allowing out-of-state accounts. I first reported on this bank in February, but I did not receive confirmation about nationwide availability until April.

To be able to pay the high interest, banks probably have to depend on the average customer maintaining a balance far below the typical $25K cap and making hundreds or thousands of dollars of debit card purchases each month. Banks get around 1% to 2% in fees with each debit card purchase, so large purchases definitely help their profits. I hope we don't see banks adding minimum purchase requirements.

In addition to adding minimum purchase requirements, banks can also reduce the interest rates or cut the maximum balances that earn the top yield. Rate cuts have been happening for a while. One new development is smaller balance caps. The $20K cap is becoming more popular, and my High Yield Checking website now lists 2 reward checking accounts with only a $10K cap.

In my opinion, banks and credit unions that don't offer these reward checking accounts nationwide will likely have a higher percentage of the average customer. A credit union that has offered a 6.01% reward checking account since June of 2007 mentioned to me in April that they had over 7,000 reward accounts with a total $45 million in deposits. This comes out to an average balance of about $6,500 which is far under their balance cap of $25,000. This credit union restricts its membership to only a few counties. It would be interesting to see what the average balances are from banks and credit unions that have nationwide availability.

The above example shows that the average person doesn't cost the credit union too much interest. I did not receive any debit card usage data. It would be interesting to know the average debit card purchases each month. If it's $1,000 and the credit union receives 2% in fees from merchants, that would cover $20 of the $32 of interest that the credit union would pay for the $6,500 average balance.

The changes from these two banks will bring down the number of nationwide institutions on my reward checking list to 15. I hope these others can maintain their nationwide availablity.

To find reward checking accounts in your area or to learn more about these accounts, please refer to my High Yield Checking website.

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  |     |   Comment #1
Great posting, BG!

I have always thought these Reward Checking Accounts were oversold to the banks and credit unions by the company in Texas that created them.
Oversold with promises of great profits (and more "reward" for the banks themselves than for the bank customers).

Happy Memorial Holiday Weekend!
  |     |   Comment #2
It is a hassle to open an account with them and the very next month interest rate go down like SBoT.
I have closed several such accounts myself.
  |     |   Comment #3
The thing I would fear is that if a small bank decides to close your account for what they consider "abuse" then any outstanding checks, billpays, and ACH transfers will bounce, creating trouble with your other creditors and accounts.
  |     |   Comment #4
Some banks may warn you before closing the account. Not all, but some.
  |     |   Comment #5
I ask a question on this site before if we are fooling the banks or ourselves with all the various ways to get around the 10 debit card uses per month. No one answered then. Anyone care to answer now. If these accounts end we have nobody to blame but ourselves. I have a reward account with Heartland Community Bank and it is a great account. I find 10 debits per month is not a problem. I use the card 12 to 15 times per month in the normal course of ever day living. They probally total about $350.00 per month. I don't know if the bank makes any money off my account or not since I keep $30000.00 on deposit. If everyone would use the accounts a intended they might last.
  |     |   Comment #6
This goes to show how banks always have the upper hand at ripping off consumers. 6% interest about breaks you even (at best) after taxes and inflation. Less than that and you're losing out. Many banks are making record profits and they've got customers suckered into believing they're abusing the bank for taking advantage of earning 6%?!!! OH PLEASE!!! People have let banks have the upper hand for too long...especially for BEGGING the banks to give them loans (thereby enslaving themselves to the banks)and accepting paltry interest rates on deposit accounts. It's time to stand up for your rights as a consumer and stop letting the banks abuse you through paying you low interest and charging exorbitant fees on top of all of this.
  |     |   Comment #7
I guess someone doesn't like banks. I do not work at a bank or own any stock in a bank and in fact don't like banks very much. However, I have never heard of a bank teller holding a gun to someone's head and make them deposit their money. Don't put your money there. Maybe a mattress would work better for you. Don't get a home loan from a bank. Get it some place else or rent. Puting money in a cd or savings account is an extremely bad investment. Investments should be put in stocks, bonds, real estate,and etc. How many wealthy people do you know or have heard of that said they got rich by keeping their money on deposit at a bank. A bank is a place to keep the money that you need to keep liquid with the hope you can get enough interest to break even after taxes and inflation. That is very hard to do now. Anyway, I hope the reward accounts continue as I keep fairly large amount in liquid accounts.
Wiahing everyone a great weekend.
  |     |   Comment #8
I appreciate your comments. You are correct; investment money should be in stocks or mutual funds, but you need to have at least a five-year time horizon to put money in the stock market. I have saved enough (through renting and living cheaply) to pay cash for a house (I have never borrowed...despite what most people think, IT CAN be done), but it may be a year or two before I find what I want. In the meantime, I'm going to find the best interest rate I can for short-term savings. Even a $10-$15K emergency fund should at least break even after taxes and inflation. My whole point is that banks have lots of people believing that the banks are stretching to pay a lousey 3%-4% and people believe them. If people would not give them their business unless they start paying at least 6%, maybe the banks would start paying decent interest, as they would become more desperate for deposits.
  |     |   Comment #9
You are a rare breed if you saved up enough to pay cash for your first house. With cash you are in the drivers seat when it comes to buying a house. With the repos out their and the market as it is you should keep it in liquid assets so you can get it in a moments notice. Good buys usely requires fast action. Good luck on buying house.

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