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10 Pros and Cons of High-Yield Reward Checking Accounts

If you're looking for decent yields on bank accounts, high-interest reward checking accounts are one of the few places where you can still earn over 3% in a liquid account. In today's record low interest rate environment, it's hard just to find 5-year CDs paying over 3%. When there's the chance that high inflation could force rates to shoot up in the next couple of years, locking into long-term CDs can be worrisome.

Over the last 3 years I've reported on hundreds of reward checking accounts from banks and credit unions in every state. You can search for reward checking accounts available in your state in our reward checking section of DepositAccounts.com. If you can't find one local, there are still dozens of banks offering these nationwide.

To learn about reward checking accounts and how they can pay such high interest rates, please refer to my post on the math behind reward checking.

There's a lot to like about high-yield reward checking, but there are some downsides to these accounts. They're not for everyone. I've tried to summarize the pros and cons of these accounts based on my three years of experience reporting on them:

Pros of High-Yield Reward Checking:

  1. Higher interest rates than online savings accounts - It's easy to find reward checking accounts paying over 3%. However, it's getting hard to find online savings accounts paying over 1.50%. Reward checking rates have fallen, but they have held up better than online savings accounts (see my rate history post)
  2. ATM fee refunds - Most reward checking accounts offer ATM fee refunds for ATMs anywhere in the nation
  3. Free checking - Most reward checking accounts are free of monthly service fees even if you don't meet the monthly requirements.
  4. Widely available - There are hundreds of reward checking accounts being offered by community banks and credit unions in every state. Also, there are dozens of banks that offer reward checking nationwide.
  5. Support your local community bank or credit union - Reward checking accounts allow you to support your local banks without sacrificing interest rate or ATM availability. In the past you needed internet banks for high yields on liquid accounts or the mega-banks for ATM availability.

Cons of High-Yield Reward Checking:

  1. Monthly debit card usage requirements - This is the main monthly requirement of reward checking accounts. The other ones (such as ACH debits and e-statements) are usually easy to meet. Most reward checking accounts require at least 10 debit card purchases a month. If you don't meet this requirement, you'll only receive a base interest rate for the month (typically under 0.25%) and you won't have your ATM fees refunded.
  2. Debit card downsides - You will have to replace some of your credit card usage with a debit card. This means you'll miss out on some cash back credit card rewards (my review of this issue). Also, debit cards have fewer protections than credit cards (my review of this issue).
  3. Banks monitor debit card purchases - It might seem that you can have the best of both worlds by using your debit card for small purchases and the cash back credit card for the large purchases. This can work, but many banks are threatening customers who make too many small purchases (see recent example).
  4. Balance caps - Most all reward checking accounts cap the top rate to some balance. $25K is the most common. The portion of the balance that is above this will earn a much smaller interest rate.
  5. Rates and balance cap reductions - Banks can reduce the amount of interest they pay out by not only reducing rates but also by reducing the balance cap that qualifies for the top rate. For example, Capital Bank recently reduced its balance cap from $25K to $10K. Now only the first $10K will qualify for the top rate which is currently 4.01% APY.

Can you think of other pros or cons in your experience with reward checking? Have the pros outweighed the cons?

To find reward checking accounts available nationwide or in your state, please refer to the reward checking section of DepositAccounts.com.

  |     |   Comment #1
Three more cons:

1. Due to constant rate/limit changes for RCAs, one has to hop around to keep the same interest income.  This involves ACH/associated interest loss (maybe 1-2 days) or mailing risk.

2. Due to amount caps, one need multiple RCAs, which introduces debit card/account risks (the more the accounts, the higher the risks).

3. For changing RCAs of multiple accounts, one has the early closure fee if one closes account prematurely or dormant/inactivity fees if one decides to keep the RCAs with unattractive rates/limits. 
  |     |   Comment #2
Against Reward accounts cont.:

6-Carrying large amount on a debit card is not for everyone (some people are paranoid of loosing it).
7-It is a big hustle to dispute un-authorized charges on the debit card.
8-Canceling a purchase will cost you at least $25 in fees.
9-The rates can be cut in the middle of the cycle and loose interest (no guaranty).
10-No extended warranty on purchases with debit card.
  |     |   Comment #3
Don't forget all Reward accounts have very slow ACH system (3-5) for push or pulls. No interest is paid during that period.
flat broke
  |     |   Comment #4
in response to the person who said rates can be cut in the middle of a month: that doesnt happen with the 2 reward checking accounts i have.  one of the accounts (a credit union) warns you 5 weeks ahead of time about a rate cut.  my other account (a bank) gives 2 weeks notice, and all changes always occur with the start of a new month.

reward checking accounts are the best **** thing going during these horrible time for savers.

with minimal organizational skills, one should be able to successfully manage a couple of reward checking accounts.
  |     |   Comment #5
Anony. #2:

6/7. Carrying large balances: one can often put a daily limit on debit and ATM (say $100).

8. Use it only for non-disputed items (say a cup of coffee or a quick lunch). 

9. Mid-cycle changes: Never happened to any of RCAs I know of.

10. Use reward cards (say CS 2% cards with extended warranty) for those purchases, not the RCA debit cards.


Anony #3: never use the RCA slow ACH system, use Ally or checks for transfers.
  |     |   Comment #7
To flat broke, FAB&T cut the rate on the 10th of the month, City National Bank from Taylor TX cut the rate on the 15th of the month, State Bank of Toledo cut the rate on the 1st of the month, but their cycle is 15th to 15th of the month. And I bet you there are few more that I have not check them out. Your statement is false.
  |     |   Comment #8
Flat Broke said: "my other account (a bank) gives 2 weeks notice", that is middle of the cycle.

You are contradicting yourself. What if you didin't get the bank message on time or where are you going to put the money after the 2 weeks notice, what if you can not open another account due to bad credit in two weeks or you have no other option but to remain put with the old bank?

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