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Comparing Rate Histories of Reward Checking and Online Savings Accounts


High-yield reward checking accounts have now been available for more than three years. Over those three years, there have been many changes with lower rates, reduced balance caps and reduced availability. However, internet savings accounts have also been hit hard in this low-rate environment. So I thought it would be interesting to compare rates for the last 2 to 3 years between these two types of accounts.

I decided to keep the comparison simple. Consequently, this isn't going to provide any significant conclusions. I chose two reward checking accounts and two online savings accounts that have long histories of competitive rates. In addition, I chose accounts from two banks and two credit unions. Below is the graph of the rates from these four institutions since the middle of 2007.

reward checking vs internet savings accounts

Reward Checking

For the reward checking accounts, I chose State Bank of Toledo and Consumers Credit Union. Both of have remained available nationwide. I could have chosen a bank that has maintained higher rates, but I thought State Bank of Toledo would be better for comparison.

I first reported on State Bank of Toledo in June 2007 when the reward checking account yield was 6.01% and this applied to all balances. Even for 2007, this was a good deal. In addition it was nationally available, so many BankDeals readers opened this account. State Bank of Toledo is a small Iowa bank so there were doubts about how long this deal would last. The rate did fall. Near the end of 2007, the rate fell to 5.01% APY. In addition, a balance cap was implemented so the 5.01% APY would only apply to the first $70K. This fell to $25K this year, and now the top yield is 2.51% APY.

I first reported on Consumers Credit Union and its reward checking account in August 2007 when the account was paying a top rate of 6.01% APY. Unlike State Bank of Toledo, the credit union always had the balance cap of $25K (which is the average for reward checking). The portion of the balance over $25K earned only 3.01% APY. The rates have fallen over the years, but the account has held up rather well. The rate only fell below 4% at the start of this month. The top rate as of 4/12/10 is 3.59% APY (0.76% for over $25K).

Savings Accounts

To be consistent with the reward checking accounts, I chose a bank and a credit union that have a long history with online savings accounts. The two that I chose are FNBO Direct and Alliant Credit Union. Coincidentally, both also offer checking accounts (non-reward) with rates that currently match their savings accounts.

FNBO Direct grabbed the attention of rate chasers in 2007 when it launched its 6% savings account promotion in May 2007. The promotion guaranteed the 6% on all balances through September. Before this promotion, the rate had been 5.25% APY which was a common rate for the top internet savings accounts at that time (the good old days). After the promotion, the rate fell to 5.05% APY. The rates remained competitive, but like all online savings accounts, the rates plunged last year falling below 2%. The rate is now 1.25% APY as of 4/12/10.

Alliant Credit Union's savings account isn't the typical internet savings account. Alliant runs several physical branches, and you can become a member of the credit union (which requires opening the savings account) at any branch. However, you can join the credit union and open the savings account online. Unlike most credit unions in which you just leave the minimum in the savings account to maintain membership, members will actually want to use this savings account since it has a long history of top rates that have often exceeded the rates of the best internet banks. When I first reported on Alliant back in 2007, the rate was actually a little below the rates of the top internet savings accounts. It never reached 5%. However, as rates fell, Alliant held on better than most banks. It just recently went below 2% when the yield fell to 1.50% for April.

Comparing Reward Checking and Online Savings Accounts

Back in 2007 when many savings accounts were offering over 5%, the 6% reward checking accounts didn't seem so hot especially since reward checking required debit card usage. There was also concern that the reward checking accounts were just gimmicks which wouldn't hold up. A few didn't hold up, but as you can see in the graph, the two that I reviewed have held up better than the savings accounts, and there are several like these. State Bank of Toledo's reward checking rate is now below average at 2.51% APY. However, this is twice the level of FNBO Direct's yield. The same can be said for the credit unions.

As I mentioned above, this isn't meant to be a comprehensive comparison, but it does show that reward checking has some history, and it shows that some reward checking accounts have actually held up better than the best online savings accounts. Since most all reward checking accounts have balance caps, savers with large balances may still want to have online savings accounts. Also, online savings accounts tend to have better online banking features like ACH transfer. Nevertheless, reward checking gives savers a way to get higher rates for at least some of their savings, and I'm very glad we have them in this time of record low interest rates.

Reward Checking Overview and Finding the Best Ones

To learn how reward checking can pay higher rates than online savings accounts, please refer to my post on the math behind reward checking. Please refer to the reward checking section of DepositAccounts.com to find reward checking accounts in your state or that are available nationwide.

Related Pages: savings account

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