Insights into High-Yield Reward Checking Accounts

Like all deposit rates, reward checking rates have fallen, but many banks still offer reward checking rates much higher than the best 5-year CD rates. Several banks have been offering reward checking for more than 3 years, so they have proven themselves to be more than just promo rates. Perhaps that's why Bankrate.com just published this article and survey on high-yield reward checking accounts.

A more interesting article is from November, and it provides some insights into reward checking from Gabriel Krajicek, CEO at BancVue, the company that invented reward checking. It also explains why reward checking rates have gone down. It's no different than why other deposit rates have fallen:

Consumer demand for these checking accounts has boomed as deposit yields elsewhere have evaporated. But loan demand has dropped off in some areas

In addition to Krajicek, two bank managers were interviewed including Larry Daniels of First Arkansas Bank & Trust (FABaT) and Bill Skow of State Bank of Toledo (SBoT). Both of these banks have long been offering reward checking accounts. Back in 2007 they were paying 6% APY with no balance cap and with nationwide availability. Both banks have cut rates and balance caps, and FABaT has also restricted availability to only Arkansas residents. Larry Daniels of FABaT describes why these changes were done:

"This product has exceeded our wildest expectations," says Daniel. "We're up to almost $141 million in (the accounts). It's a concentration issue, a rate issue and a loan issue -- almost a perfect storm from an economic standpoint. We have surplus funds that we're paying a very, very attractive rate on, but we're having difficulty finding people who want to borrow.

Bill Skow of SBoT provided some insights into how much debit card usage and e-statements help offset the high interest rates:

2.51 [percent] actually looks more like 1.5 percent or 1.75 percent to us

The article mentioned that SBoT is paying 2.51% APY on balances up to $70K. The balance cap has been cut to $25K according to the bank's website. As I mentioned in my post on the math behind reward checking, debit card usage has more impact with smaller balances. So that's why balance cap cuts have been almost as common as rate cuts.

The article does say that not all banks have made big rate cuts or restricted the nationwide availability. This is likely due to the banks being in areas with better loan demand. A few weeks ago I looked into five banks that have offered reward checking nationwide for over two years which still offer yields of at least 4.00% (see review).

We still have 100's of high-yield reward checking accounts in our reward checking tables. Most are local deals, but there are a few available nationwide. These are indicated with the US map to the left of the bank's name.

Edit: Added recent article that goes along with survey.