I'm starting a new blog feature. I've been posting on new reward checking accounts for the last four years, and we now have a large database of reward checking accounts across the nation. These can be viewed by state or by accounts available nationwide. However, some of the best reward checking accounts are local deals in which you have to live in the city metro area of where the bank or credit union is located. So I thought it would be useful to review reward checking accounts for several major cities in the nation. My first city to review will be Austin since this is where high-yield reward checking was created.
Reward Checking Overview
For those not familiar with reward checking, there are two main rewards that are typical with these checking accounts:
- High interest rate that's usually higher than internet savings account rates
- Automatic reimbursement of ATM fees when you use out-of-network ATMs
The catch is that to receive these rewards, customers most perform monthly activities which typically include:
- 8 to 20 debit card purchases per month
- Monthly direct deposit or automatic debit/credit (ACH)
- Receive online statements
There are sometimes other requirements like logging into your online account or using bill pay, but the ones above are the most common.
What happens if you don't meet these requirements? Typically, you just miss out on the high yield and the ATM fee reimbursements for that one month. These accounts are almost always free of monthly service fees regardless if you meet these requirements. If you meet next month requirements, you'll be back to earning the high interest rate and receiving ATM fee reimbursements.
There's another important feature of reward checking accounts. The high yield that you can earned is typically capped at around $25,000. This cap can range from $10,000 to over $50,000, but $25,000 is the most common cap. Any balance above this cap typically earns a much smaller interest rate.
For those who have a moderate savings balance and don't mind using debit cards, these reward checking accounts can be a good deal. At worst, it's a free checking account if you don't meet the monthly requirements. With a little work, it's a free checking account with free ATMs and with interest rates that are even better than long-term CD rates.
How can banks afford to offer these reward checking accounts? Each time you use the debit card, the bank receives a percentage of the purchase. This is called an interchange fee and is paid by the retailer. These fees help the bank pay for the high yield and the ATM fees reimbursements. Limiting the balance that qualifies for the high yield also helps make it affordable to the bank. Requiring e-statements and encouraging direct deposit can also save the bank some money. For more analysis on this issue, please refer to my post on the math behind reward checking.
History of Reward Checking
The high-yield reward checking model was created by BancVue, a company based in Austin that sells products and services to community banks and credit unions across the nation. The reward checking product is intended to help community banks compete with the megabanks and with the internet banks. BancVue started developing the reward checking model back in 1997 with City National Bank in Taylor. In 2005, BancVue started rolling out reward checking to banks nationwide. Now there are several hundred community banks and credit unions offering reward checking.
Reward Checking in the Austin Metro Area
Below are several reward checking accounts available in banks with branches in Austin or in its metro area. I'll start with City National Bank in Taylor which is just northeast of Austin.
- City National Bank in Taylor - As mentioned above, this is the first bank to offer BancVue's reward checking account. CNB's reward checking is actually atypical for two reasons: 1) they don't have a balance cap so all balances can qualify for the top yield, and 2) they offer the account nationwide. This likely explains the big fall in interest rates over the last several months. Last year at this time, the top yield was 3.28% APY. Now it's only 1.05% APY as of 9/9/2010. It should be noted that 1.05% APY isn't really that bad when compared to large internet banks like ING Direct which currently offers only 1.10% APY on its online savings account. However, compared to other reward checking accounts, the rate is low. The other perk is that they refund all ATM fees nationwide if you meet the monthly requirements. CNB's monthly requirements are typical: 10 debit card purchases, direct deposit and e-statements. Please refer to my City National Bank checking account review for more details.
- United Heritage Credit Union - Anyone who lives or works in Travis County and most of the surrounding counties can become a member of United Heritage. They have been offering the reward checking account, called Heritage Checking, since 2007. However, they had to implement some changes for new accounts. From February of 2009 to May of 2010 they stopped opening new accounts. When they relaunched the account, the balance cap was reduced from $25K to $10K and the required monthly debit card purchases was increased from 10 to 15. At least they maintained the 3.01% APY (as of 9/9/2010) which is comparable to the best 5-year CD yield. Please refer to my United Heritage Credit Union checking account review for more details.
- R Bank offers the R Best Checking Account which is fairly new and is currently the best deal for those in the Austin metro area. Accounts have to be opened in their Round Rock office which may be a long drive for those in South Austin, but the drive might be worth your time. The R Best Checking Account pays 4.13% APY on balances up to $35K as of 9/9/2010. However, I've been told this will drop to $25K starting in October. They also reimburse ATM fees, but only up to $20 per month. Monthly requirements include 12 debit card purchases a month, direct deposit or ACH payment, and e-statements. Please refer to my R Bank checking account review for more details.
- Pioneer Bank - This is a small bank in Dripping Springs which is southwest of Austin. The bank has an online application for its checking account, but you have to come into the office to complete the application process. The reward checking is called Pioneer High Yield Checking and it pays 3.26% APY as of 9/9/2010 on balances up to $25K (The rate just recently fell from 3.51%). ATM fees are automatically refunded. Monthly requirements are typical: 10 debit card purchases, direct deposit or ACH debit and e-statements. This is also a fairly new account. I did my first review of this account in February 2010.
- Independent Bank has its headquarters in McKinney which is north of Dallas, but they also have several branches in Austin and its suburbs. Its reward checking pays 4.01% APY on balances up to $25K as of 9/9/2010. It also refunds ATM fees nationwide. Monthly requirements are a little easier than average with just 8 debit card purchases a month. There are also the typical requirements of direct deposit (or ACH) and e-statements. I first reviewed this reward checking account in May 2008 so it has quite a bit of history. Since that time the top yield has fallen from 5.01%, but that's not too bad considering the interest rate environment over the last two years.
- Commerce National Bank is a good one for Aggie fans. Its headquarters is in College Station, but it has a branch in West Lake Hills which is just west of Austin. Its reward checking account is called AwardChecking and it pays 3.04% APY on balances up to $25K as of 9/9/2010. It refunds up to $15 per month in ATM fees. Its monthly requirements are a little more demanding than average: 12 debit card purchases, direct deposit (ACH and bill pay are alternatives), e-statements and you're also required to log into online banking once per month. Commerce National also offers another reward checking account called Senior AwardChecking which may appeal to those with large savings. It pays 2.00% APY as of 9/9/10, but this applies to balances up to $500K. I first reviewed these accounts in October 2009.
Future of Reward Checking
As was seen at United Heritage Credit Union and City National Bank, reward checking hasn't been easy for all banks to maintain. Rates and balance caps can change at any time. Also, the banks have suspended the opening of new accounts or just stop offering the accounts. One example of this in Austin is at Texans Credit Union which stopped offering its reward checking account (High Rate Checking). Also, the small Austin-based bank, Libertad used to offer a reward checking account that was available nationwide. Last year the bank slashed the rate for existing customers and stopped offering new accounts. So even though reward checking has years of history, there's no guarantee that these high rates can continue. In addition to the continued low interest-rate environment, reward checking will likely face additional headwinds as new overdraft and debit card regulations take effect. I reviewed these issues in this recent post.
Texas-wide and Nationwide Reward Checking Accounts
There are other reward checking accounts available to those in Austin. Some are offered by banks in other parts of Texas that allow accounts to be opened online. I reviewed a few of these in this post. There are also banks outside of Texas that offer nationwide reward checking accounts. Please refer to the reward checking section of DepositAccounts.com to review these.
Did I forget any Austin reward checking accounts? And what bank or credit union has your favorite Austin checking account? Feel free to leave a comment even if it's not a reward checking account.