Survey of Old Reward Checking Accounts: Which Have Held Up Well and Which Haven't

When you are opening a checking or savings account for its high interest rate, you are hoping that the rate will stay high or at least remain competitive for the long-term. With checking or savings accounts, banks are free to change rates. It's quite common for banks to decide not to keep their accounts competitive. Some examples include the online savings accounts from E*Trade Bank, E-LOAN and M&T Bank. These accounts used to be very competitive. Now they all have rates way below average for internet savings accounts. There have been similar cases of this for reward checking accounts. However, there have also been some that have held up well. In this post I'll review both cases with the hopes that it will provide some insights to help you in choosing a new reward checking account.

For those not familiar with high-yield reward checking accounts, these accounts offer high yield if you meet certain monthly requirements. All require that you make between 10 to 15 debit card purchases per month. There are additional details, but this is the basic concept.

I first started reporting on reward checking accounts in 2006, but it was 2007 when new reward checking accounts started to pop up weekly. How have these reward checking accounts that launched in 2007 held up? The ones that I consider to have done well have still had many changes including rate and balance cap cuts and reduced availability. However, they continue to offer rates that keep these accounts as good alternatives to internet savings accounts. Those that haven't held up are no longer a good alternative.

Held up Reasonably Well

• Danversbank in Massachusetts - My first post was in April 2007 when the reward checking was paying 6.01% APY on balances up to $100K. As of 11/09/2010, the top rate is 3.01% APY for up to $25K. It's one of the few banks that has continued to allow anyone in the nation to open an account.
• First Arkansas Bank & Trust (FABaT) - My first post was in late December 2007 when FABaT's reward checking account was paying 6.06% APY on all balances with nationwide availability. A few months after that, the top rate fell to 4.44% APY for up to $50K. As of 11/09/2010, the top rate is 3.50% APY for up to $35K. Another change happened in 2009 when they limited new accounts to only Arkansas residents.
• Community West Bank in California - My first post was in July 2007 when the reward checking account was paying 5.50% APY for up to $25K. As of 11/09/2010, the top rate is 3.04% APY for up to $25K. The bank has always required a branch visit to open an account.
• Florida Central Credit Union - My first post was in November 2007 when the reward checking account was paying 6.01% APY for up to $25K. The rate fell less than others. As of 11/09/2010, the top rate is 4.50% APY. However, the balance cap has fallen. the top rate only applies to balances up to $15K. Membership has remained limited to certain west-central Florida counties. However, the number of counties has grown a little bit since 2007. It now includes Orange and Lake County.

Haven't Held Up Well

• Valley Community Bank in Illinois - My first post was in April 2007 when the reward checking account was paying 6.01% on all balances. Early in 2008 a balance cap of $100K was added. The rate slowly went down, but late last year, the rate plummeted to under 1.00%. This has continued, and as of 11/09/2010, it only pay 0.85% APY for up to $100K. There has been speculation this new low rate is due to the FDIC rate caps for less-than well capitalized banks. The rate cap for interest checking just happens to be 0.85%. And as you can see in our financial overview for Valley Community Bank it has an overall health score of only 1 out of 5.
• West Texas National Bank - My first post was in December 2007 when the reward checking account was paying 6.01% APY for up to $25K. The rate fell slowly in 2008, but then at the start of 2009, the rate plummeted from 4.01% to 2.01% APY for up to $25K. As of 11/09/2010, the top yield remains at 2.01%. The account has been available nationwide. Some small banks have chosen to reduce availability and keep rates high. This bank appears to have chosen the opposite.
• Charter Bank in New Mexico - My first post was in November 2007 when the reward checking account was paying 6.01% APY for up to $25K. The rate remained high for quite a long time until last November when the yield plummeted from 4.01% to 1.25% which appeared due to the FDIC rate cap for less-than well capitalized banks. The bank then failed in January 2010, but it was taken over by a newly chartered bank with the same name. The new bank continued to offer this reward checking account, but the rate only got worse. As of 11/09/2010, the top yield is only 0.25%. The only small reason anyone would keep this is due to the ATM fee reimbursements.

One thing that you can see is that the health of the bank can be important. Weak banks can be subjected to the FDIC's rate caps, and if they are shut down, the new bank that takes over isn't likely to bring back the high rates. For banks that are healthy, the size of the bank is a consideration. If the reward checking account is available online from any state, a small bank won't be able to offer the rates that are overly competitive for too long. It will either do what FABaT did and reduce availability or what West Texas National Bank did and lower the rates.

Other High-Yield Reward Checking Accounts

To find reward checking accounts in your state or to find those available nationwide, please refer to the reward checking section of DepositAccounts.com.