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Reward Checking Account Rates Fall


With the new month there have been several banks and credit unions that have cut the yields on their reward checking accounts. MidWest America FCU's 7.01% reward checking account was one of these. The yield was cut to 6.31% APY. The 7% yield had a good run. It had lasted for most of this year, and 6.31% APY remains the top yield in both my list of nationwide reward checking accounts and my list of reward checking accounts by state. There are still a few with 6% yields, but the numbers of these are going down.

The average yield remains around 5% APY, so reward checking is still a viable way of earning 100 basis points or more over the top online savings accounts yields (4% APY).

For those questioning how these institutions can afford to pay these high rates, it's important to remember the two important features of these accounts:
  • Balance cap that's typically $25K. This is the maximum balance that earns the top yield.
  • Requirement of around 10 debit card purchases a month to qualify for the top yield.
Hopefully, the Average Joe who opens these accounts will make $1,000 or more in monthly debit card purchases. Since the financial institutions earn around 1.5% from the merchants off of each debit card purchase, this can help pay for the high interest. Also, the Average Joe is unlikely to maintain the maximum balance. One credit union sent me a few bits of data on their reward checking account usage, and the average reward checking balance was only about $6,500.

The results from the poll that I started on the left sidebar at my reward checking website don't bode well for instutitions hoping to rely on debit card fees. Out of 95 of those who responded, 58 said they spend under $100 a month on debit card purchases. That's not going to help the institutions pay the high yields. However, I doubt this is respresentative of the Average Joes. I would guess that the average reward checking customers spend far more than $100 a month with their debit cards. Let's hope that these reward checking accounts can attract enough Average Joes that the institutions can continue the high yields.

To find reward checking accounts from institutions near you or to learn more about these accounts, please refer to my High Yield Checking website. I now have 262 reward checking accounts listed. If you find the rate of an account has changed, please leave a comment in the post reviewing the account (links to the posts are on the right side of the table). I'll update the post with the rate. The tables are updated once or twice a week.
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gaelicwench   |     |   Comment #1
I've read a few blogs of people who have reward checking accounts; what they do is spend maybe $10 total to meet the debit card requirements to qualify.

I think what's going to happen is that banks who want to keep the Rewards Checking feature going is to simply change the terms. The transactions will have to be greater than perhaps $5.00 to count.

Time will tell.
Mario   |     |   Comment #2
I'm still confused about the revenue stream that banks/CUs get from debit card transactions. Do they receive a per transaction fee, or is it based on the amount of the purchase? If I split up a $10 transaction into hundred 10 cent transactions, do I generate more revenue for them (which would help keep the rates high) or do I hurt them (if processing my hundred small transactions creates more work than the fees they collect)?

I know a lot of them require it being a signature based purchase, so obviously it also has to do with the transaction being processed as "credit" rather than "debit."

I remember back when Bank of America started the "Keep the Change" program, many of us did lots of few cent transactions and I believe the consensus was that BoA would still generate a lot of fees from these small cent transactions.
Anonymous   |     |   Comment #3
I'm confused about the people who spend $1 in 10 transactions to meet the requirements. If they have a 6% account capped at $25K they're getting better than $100 per month interest. So how do they keep under the cap? Withdraw the interest?
Anonymous   |     |   Comment #4
Re the question asked above,the $25K cap typically is on the balance on which the bank will pay the rewards interest. They're fine if you have more money in the account. You just won't earn the higher interest on any amounts above the cap.

PS - I've had a rewards account with Charter Bank in NM for most of the past year. They've remained constant at 6% for up to $25K... But starting in October, they are raising the required number of monthly debit card purchases from 10 (now) to 13 (new). Still, they don't seem to enforce any $ minimum amount on the card purchases.
scott   |     |   Comment #5
With all the good rewards cards like Chase 5% EDP I can't see many rate chaser types spending more than the bare min. I have stayed away from the higher rate accounts that max you at $25k. Only have 2, Danvers 4.01% which I'm Grandfathered in with $100k Max and Arkansas 4.44% which has a $50k max
scott   |     |   Comment #6
Also meant to add that I have had both these accounts since they were offered and never spend more than $60 a month on each
glxpass   |     |   Comment #7
Gaelicwench said:

I think what's going to happen is that banks who want to keep the Rewards Checking feature going is to simply change the terms. The transactions will have to be greater than perhaps $5.00 to count.

This seems to violate FDIC policy. See FDIC Bulletin Number: CHIRO-05-2007
Anonymous   |     |   Comment #8
Still great Checking Rates out there... up to 5.25% APY, according to RateBrain

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