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:
- 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)
- ATM fee refunds - Most reward checking accounts offer ATM fee refunds for ATMs anywhere in the nation
- Free checking - Most reward checking accounts are free of monthly service fees even if you don't meet the monthly requirements.
- 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.
- 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:
- 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.
- 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).
- 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).
- 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.
- 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.