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Financial Health Grades Updated from 2017 Q1 FDIC and NCUA ReportsFive Best Reward Checking Accounts Available Nationwide
High-yield reward checking accounts continue to hold up better than internet savings account in this record low interest rate environment. They may have a harder time as new regulations take effect that lowers the fees that banks receive from overdrafts and debit card purchases. We'll have to wait and see how much of an impact these new regulations will have. Even if rates go down, they may still be good deals compared to internet savings accounts.
For those not familiar with reward checking, these checking accounts offer customers a high yield for up to a certain balance ($25K is common) if you meet certain monthly requirements which typically include around 10 debit card purchases, direct deposit/ACH transaction and e-statements. Many also offer ATM fee refunds if you meet the monthly requirements. Most are free checking accounts even if you don't meet the monthly requirements.
In this short list of reward checking accounts, I decided to include those which have the best rates that apply to balances of at least $25,000. Some offer 4% but the maximum balance for this yield is only $10K or $15K.
The ones listed are available nationwide as of 7/21/10. Banks and credit unions often change their policies and restrict these to their local market areas. So some of these institutions may fall of this list.
As of 7/21/2010, four of the five offer at least 4.00% APY on balances of at least $25,000. As we have seen in the past, both the rate and the balance cap may fall. Two of them have held up well over the last few years. Another two are new, and we'll have to wait and see how well they will hold up.
You may not always want to go with the ones offering the best rates. The ease of the application process is another factor to consider. Also, you may want to consider the chance that they'll continue to be a rate leader. This is not easy, but factors like the rate history and the size of the institution can provide some indication about what to expect.
- Randolph Bank & Trust Company is a new one. My first post was just last week. I and other readers have confirmed that the bank is allowing people from any state to apply. Please note that it's a small bank, and small banks often change their policy on availability. Update 8/12/10: The account is now restricted to NC residents.
- ViewPoint Bank - top rate for up to $50K. First post was on May 2008. As I described in this post, opening this account is not easy. Update 7/27/10: The account is now limited to Texas residents.
- Danversbank - top rate for up to $25K. First post was over 3 years ago so it has quite a bit of history. Readers have reported an easy account opening process.
- South Division Credit Union - This Illinois credit union is on the nationwide list since its field of membership makes it easy for anyone in the U.S. to join. However, it's a small credit union which primarily serves an area in the Chicago suburbs. My first post on this reward checking account was in November 2009. The rate has remained the same since then.
- Westfield Bank FSB is also fairly new on my list. My first post was last May. One advantage of this bank is that they are listed on CheckingFinder which allows you to apply online.
Other High-Yield Reward Checking Accounts
There are still some reward checking accounts that pay over 5% APY on balances up to $25K. There's even one that still pays 6.01% APY. However, you'll have to live near one of these institutions to qualify. You can find these in your state at the reward checking section of DepositAccounts.com. The "Filter Accounts" button allows you to customize the table for your state and for the amount you intend to deposit.
#2 I don't know Texas Citizens, but if they are simply requiring a direct deposit to get the 4.77%, that is normal, and I would set it up. Did they offer 4.77% without that before? A direct deposit is a standard requirement for these things. Also, beware that there are often fees for closing an account within a short number of months of opening it. I rarely close them, I just might take all the money out and leave a token $50 or so until those months have passed, then close later...
#3 Randolph Bank in NC emailed me yesterday and they will allow people to open multiple accounts, they specifically advertised in their email "no limit to the number of accounts per person" when I never asked that! I'm not sure what they're up to but they sure want people to open these. Also they said "available nationwide." I would guess their 4.75% on up to $25K won't last forever, but apparently is guaranteed thru the end of the year. My only issue now is can I really take on that many more accounts and make all these charges. I'm thinking it might be time to start closing some older ones that have dropped their interest in favor of some new ones. That too is a lot of work. Randolph wants you to open them online starting 8/1, not by phone anymore. I called yesterday and they asked me to work online.
Even tho it's not national - it would be good to know - if we are traveling to that area.
6.01% RCA: Golden Plains CU (KS), one needs both membership and KS residence to open an account with them.
http://www.depositaccounts.com/blog/2008/04/601-reward-checking-account-at-kansas.html
Thanks for the site Banking Guy and for everyone's input.
Anyway, for my banks the transactions count whether they are signature based or pin-based. I buy gas often, usually every time I go out, sometimes buying only a couple of gallons in a transaction. I go to the grocery store and buy a few things, and go to the self-checkout. I then process my items in 2 or 3 transactions, getting 2 or 3 receipts. If you are using your PIN for the transaction you can also get cash back to make the transaction larger than it would otherwise be. In my area, I can log on to my cable tv account, my telephone account, and my water company and make online payments using the debit card for a small amount each, say $5.00, to generate a charge. Those are partial payments against the bills and you can do several of them on different cards to pay off your bill. I often shop for my elderly neighbor who asks me to pick up bread or milk, and I use the cards for those charges. Bottom line: you get used to it.
I maintain a checkbook register for each account. When I come home I enter the charges as deductions in the register to keep track of the balance, and I number them 1, 2, 3, etc to I can keep track of how many I've done for that month to meet the requirements. Also, the accounts cycle their statements at different times each month. Some are last day of month, one is 2nd Tues, one is 3rd Wed. So you need to get used to that and keep track of when each statement cycles so you know you must start charging again to meet the requirements.
To meet the requirement of an ACH deposit each month, I have each account linked to Schwab and have a recurring ACH transfer set up for $100 each month from Schwab to the account, set to occur at a date that falls during the middle of the statement cycle.
As to your question about paying utility bills, that ONLY counts as a transaction if it is done with the debit card. It does not count if you have your utility debit your checking account using the r/t and account numbers. Note that some of your utilities MAY charge a fee to you for making a payment using a credit/debit card, so it will not be a good idea to do those and pay the fee.
Is it worth it? So far, for me, the answer has been yes.
Bill-pay and ACH transfers to your utility do not count, though the latter would count towards those banks that require an ACH.
Of course the other point is the money I put in reward checkings I want to be liquid, and the GE bonds fluctuate so even if you can sell them if you need the money out quickly you may have to take less than you paid. I use the rewards checkings for money that is borrowed on a floating rate, and if rates go up I need to use the money in checking to pay off the loans. And that money must be 100% secure. I find 4% rewards checkings to beat money markets, online savings accounts, short term (<= 1 yr) treasuries/agencies, and even the GE/Caterpillar/Ford money market equivalent savings accounts. I think GE pays around 1.5% on that right now, and the rewards checking beats it.
All that said, I will keep my GE bonds, but no way would I expose more than a small percentage to them. Why do you think they pay 5-5.5% for a 12 year maturity, when a company deemed by the market to have much lower risk (Berkshire, Wal-Mart, for example) yield under 4% for similar terms? Because the market sees the size of the debt, and the concentration in financial, as being marginally more risky. There is no such thing as risk-free reward, except when the government backstops all possible losses as it does with FDIC up to the insurance limit.
And past experience has shown that when a bank guarantees a rate until a specific date, it's going to drop the rate on that date. If we're lucky, it's only down to 4%. But look at what happed to Texas Citizens as described earlier. A 2% drop.
Bankrate just came out with its latest ratings and it dropped Randolph to 2 stars. One of the negative factors that impacted that rating was Capital Inadequacy. So maybe Randolph is trying to boost it's capitalization by adding a bunch of reward checking clients each depositing $25K, lured by that extraordinary 4.75 rate. Then once they've wrangled as many depositers as they can, they drop the rate, hoping to hold on to many of them because the number of reward checking accounts paying a decent rate of interest is dropping like flies.
I hope I'm wrong. I applied for a Randolph RCA and am waiting for the paperwork. But I'm starting to become skeptical. I may open the account, but not fully fund it until I see where the rate goes on 12/10.
Texas Citizens did not require a direct deposit for the 4.77% up to 25,000. They required twelve debit card transactions and three online bill pays only. For 5 per cent then you had to have a direct deposit, three bill pays and twelve debit card purchases. The 5 per cent still exists with a direct deposit but the 4.77 without direct deposit has fallen to 2.77.
Now the question is, can one make money by arbitraging government guaranteed investments? My HELOC is not needed for anything and has a $150K limit, with a rate of prime-1%. With prime at 3.25%, I pay 2.25%. Suppose I open 6 accounts at Randolph, each with $25K. My profit would be 6x$25Kx(4.75%-2.25%)=$3750. That is $312.50 per month. My burden after setting it all up would be to make 6*12=72 charges per month. 2 or 3 a day, although I can easily do 10 on an outing. So you figure it out. If I'm working in a good job and busy, the answer is no. If I'm retired with little to do anyway, why not? (Although I think 72 would be over the top. I'll do less, if I do any at all.)
Hope my long verbosity met your expectations.
I understand your concern about lower ratings. However, since you are openning the account anyway, why not fund it fully and take advantage of the high rates? If rates go down, you can transfer the money out.
Thanks a lot for the input on the direct deposit issue. I will call the bank to find out. Your help is much appreciated.
You're assuming a 0% tax rate on the interest you will be earning on your 4.75%. If you had a 30% tax rate, that roughly lowers the after-tax yield to about 3.33%. That will significantly reduce your spread!
Of course, if you already planned to itemize anyway, and already met the itemiziation threshhold (where your HELOC interest would be icing on the cake), then you may be able to offset the tax you pay on the interest by deducting a good chuck of your HELOC interest payments.
One final caveat: with your HELOC drawn out, that will affect your FICO scores as outstanding debt, so if you plan to apply for loan or credit products, it may be worth checking on whether having $150k in "debt" on a retiree income may preclude you from future products or rates.
I live in a state with no state income tax. I am in a low marginal Fed bracket. I itemize, usually. The earned income is taxable, and the HELOC interest is 100% deductible as investment interest, not mortgage interest, (or $100K as mortgage and the balance as investment, it makes no difference) because use of the borrowed money is directly traceable to the investment in the rewards checking. The money is borrowed to make an investment which is earning taxable interest, thus investment interest.
I have an 816 FICO, and don't use any credit at all now or at any time in the future. I couldn't care less what happens to my credit score, unless it were to get so low that it started to cause my car insurance premiums to rise (they do check). I have had the $150K drawn out and in a 5% CD once already, but that matured. This works, for me.