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POSTED ON BY Ken Tumin
With savings account and CD rates plummeting, reward checking accounts may start to look more appealing to people who had not considered them before. Many of these accounts are still paying over 5% for balances up to $25K. The main issue some people have with these accounts is the debit card usage requirement. All reward checking accounts require that you make around 10 debit card purchases a month to qualify for the high yield. Besides the hassles with making 10 or more debit card purchases, there's the concern about fraud. For credit cards there are protections under the law. In addition, fraudulent charges made on credit cards aren't directly debited from your checking account. Here's some commentary on debit cards from consumer advocate Clark Howard:
Last month, Flexo posted on his blog Consumerism Commentary an interview with a Visa representative regarding debit cards. His first two questions concerned the issues of fradulent charges and consumer protections. The Visa representative mentioned its Zero Liability policy. One important note regarding this policy is that you only qualify if you sign for purchases (choose the credit option rather than debit). Signature-based purchases using a Visa debit card are processed over Visa's network, but PIN-based transactions may not be.
Flexo just posted some additional Q&A's from Visa that deal with other issues for comparing the trade-offs between debit cards, credit cards and cash. His 5th question dealt with debit card rewards. Some banks and credit unions have started various credit-card-like reward programs for their debit cards. In these programs you get some percent back in cash, air miles, etc. for each dollar you spend with the card. Bank of America's Keep the Change Program and Wachovia's Way2Save are a little different but they essentially reward customers for making debit card purchases.
The high yield reward checking account is another type of reward program. What can make this better than the credit-card type of reward program is that it favors savers over spenders. For cash-back credit card rewards, the more you spend, the more you make in rewards. For reward checking accounts, the amount of the rewards depends on your checking account balance instead of how much you spend. You only have to meet the required number of monthly debit card purchases. If you maintain $25,000 in the checking account and meet the requirements for a year, you could potentially make $500 more than what you would have made in a high yield savings account. This assumes that the reward checking account maintains an interest rate 2% higher than your savings account which may be a little optimistic.
Related reward checking posts and resources:
If you discover false transactions on your credit card, you're protected under the law, right? But what about your debit card? There's nothing required in current regulations to forbid your bank from charging you NSF fees if a thief steals your debit card. Your bank is only required to restore funds -- they're not required to waive any bounced check charges. Shame on the banks.
Last month, Flexo posted on his blog Consumerism Commentary an interview with a Visa representative regarding debit cards. His first two questions concerned the issues of fradulent charges and consumer protections. The Visa representative mentioned its Zero Liability policy. One important note regarding this policy is that you only qualify if you sign for purchases (choose the credit option rather than debit). Signature-based purchases using a Visa debit card are processed over Visa's network, but PIN-based transactions may not be.
Flexo just posted some additional Q&A's from Visa that deal with other issues for comparing the trade-offs between debit cards, credit cards and cash. His 5th question dealt with debit card rewards. Some banks and credit unions have started various credit-card-like reward programs for their debit cards. In these programs you get some percent back in cash, air miles, etc. for each dollar you spend with the card. Bank of America's Keep the Change Program and Wachovia's Way2Save are a little different but they essentially reward customers for making debit card purchases.
The high yield reward checking account is another type of reward program. What can make this better than the credit-card type of reward program is that it favors savers over spenders. For cash-back credit card rewards, the more you spend, the more you make in rewards. For reward checking accounts, the amount of the rewards depends on your checking account balance instead of how much you spend. You only have to meet the required number of monthly debit card purchases. If you maintain $25,000 in the checking account and meet the requirements for a year, you could potentially make $500 more than what you would have made in a high yield savings account. This assumes that the reward checking account maintains an interest rate 2% higher than your savings account which may be a little optimistic.
Related reward checking posts and resources:
I find it their use much easier (and probably more financially beneficial in the long run) than having to pay close attention and "work" a reward checking account and have lowered protections.
With regard to the debit card transactions, I keep mine as small as possible. I generally go to a store with a self-checkout area, and separately purchase very small ticket items, such as $1.00 candy, or $1.00 or less canned goods. If you go at an odd time, nobody bothers you; you can get most of the transactions done in one or two trips, and you don't have to spend more than $10-$20 dollars doing it, buying things you would ordinarily purchase, anyway.
As to using rewards checking though, I was all set to go and then looked at the spreadsheet. If you get say a 2% greater reward than on a straight checking or a short term CD, then that is a bit over $40 a month on $25K on deposit, seemingly the normal max. That translates to $4 and change for each transaction. And **** up once and you have lost that extra earnings not just for the month but for the month before as it seems that the default rate is 2% less than a short term CD rate.
Now I hadn't thought about visiting a self checkout line at say a Walmart at night like Deb said and doing 10 quick $1 transactions, but is it worth it for the $40 bucks? I am not sure that it is for me.
Banking Trend News I found interesting: December Data Confirms Community Banks Winning Battle for Deposits
Highlights of the study include:
1. Deposits in REWARDChecking accounts jumped another $183 million in December.
2. Demand deposit accounts are now being offered by 477 community financial institutions across the country, an 82% increase in the network from a year ago.
Follow link for the original report:
http://www.msnbc.msn.com/id/28757512/
The only downside is - can anyone use 12 small, hard bricks?
Funny, a year and a half ago, I was certain I could never meet even 10 transactions a month. I guess it just proves that an old school, cash carrying guy like me can change for a few extra bucks a month.
I have direct deposit going to my reward checking in my local CU. I allocate the amount I need for my monthly bills to include a few dollars since some fluctuate a wee bit. Also, in my direct deposit, it's a monthly fixed amount from my ex's retirement income; the gov't gave all military, retirees and disabled vet a 5% increase across the board. I, too, got that increase. I've taken that difference between last year's amount and this year's and am putting it in the "Do Not Spend" column. It's as if I never got it to begin with. Throw in the required transactions and the compounded interest grows exponentially.
I also have a Roth IRA that, because I am 50, I can play catch-up without penalty, so will move the money from my checking into it once yearly. Or, I can put it into my HSA (health savings acct) so I won't have to pay taxes on the interest anymore than I have to.
Sorry for the lengthy *diatribe.*
If you are over 50, the current Roth annual contribution maximum amount is $6000. For HSA, the maximum participant amount varies per health insurance plan. For HSAs, you can invest the money into many choices (stock, bond, money market mutual funds as well as regular bank accounts depending on the custodian offerings). With the market tanking late last year, there were losses up to 60% for many mutual funds. So if you invested your HSA money into say, a foreign stock fund, you saw losses amounting up to over 50% on your account, And if you needed to spend that money on health expenses, the available amount of money would have evaporated over last year. For those who did invest their HSAs in the stock market, I hope that have many years of good health because they will need it in order to recoup back the money that disappeared from their accounts. But I guess that same thing happened to all of those 401(k) and retirement plan accounts as well. I opened a Roth IRA last year and deposited $3000 into one and saw it lose 40%. I guess I should have used the money to buy lotto tickets instead.
Also, Evantage Bank and AmericaNet Bank seems to be sister bank of the Bank of the Wichitas since the websites are exactly the same.
Any comments?
Bank of Ripley makes a hard inquiry into credit history. It shows up as inquiry which could potentially lower your credit score.
I discussed with them but they flatly refused to remove the inquiry. I am ****ed off, but well, the high APY is ok.
The eligibility requirements as I described in my post allow people to join via an association membership. So you should be able to qualify for membership this way unless the credit union has made changes.
Some credit unions have required members to come into a branch to open these reward checking accounts. So even if membership is open to everyone, the reward checking account isn't.
Also on the website, they have listed the counties in which one has to live/work/worship etc.to qualify.