When is Reward Checking No Longer Worthwhile?

In the last two years interest rates on reward checking accounts have held up better than rates on internet savings accounts. However, one thing that complicates the comparison is reward checking balance cap reductions. In addition to rate cuts, reward checking customers also have to worry about reduction of the balance cap. This is the balance that qualifies for the reward rate. The portion of the balance over this cap typically earns a much lower rate. Here's an example from Danversbank, one of the few nationwide reward checking accounts that still has a 4.00% APY as of 7/09/2010:

• 4.01% APY up to $25,000
• 0.25% APY for portion of balance over $25,000

The $25,000 balance cap has been the most common balance cap for reward checking. However, more banks are reducing this instead of reducing the rate. Caps of $10,000 are becoming more popular. An important question will be how low can this balance cap be before the high yield is no longer worth the effort of the monthly requirements?

One method to determine this is to compare the reward checking account to your best savings account. How much more money per year or per month are you earning from your reward checking account compared to what you would have earned if you just kept the money in your savings account?

Let's assume a savings account APY of 1.50% and a reward checking APY of 4.00%. Below is how much extra you would earn in the reward checking account per year and per month for a range of balance caps.

Extra Money from 4.00% Reward Checking Over a 1.50% Savings Account

• $10K balance = +$250/yr or +$21/mo
• $25K balance = +$625/yr or +$52/mo
• $50K balance = +$1250/yr or +$104/mo

Extra Money from 3.00% Reward Checking Over a 1.50% Savings Account

• $10K balance = +$150/yr or +$12.50/mo
• $25K balance = +$375/yr or +$31/mo
• $50K balance = +$750/yr or +$62.50/mo

Based on these examples, you can determine if the extra money you'll get from a reward checking account makes it worthwhile. Is the extra $250 per year from a 4.00% reward checking account with a $10K balance cap worth your time? It's an extra account to worry about with monthly requirements that typically include at least 10 debit card purchases.

How much extra per month does it take for reward checking to be worthwhile for you?

High-Yield Reward Checking Accounts

Please refer to the reward checking section of DepositAccounts.com to find reward checking accounts in your state or that are available nationwide.