Reward Checking Accounts and Debit Card Requirements

The main requirement of reward checking accounts is the monthly debit card usage. There are a few other requirements like ACH credits/debits and e-statements, but the debit card usage is the main one. If you make the required number of debit card purchases and meet those other requirements, you are rewarded with a high interest rate and ATM fee reimbursements for that month.

The vast majority of reward checking accounts don't place minimum purchase requirements on the debit card usage. You only have to make X number of debit card purchases. There's no requirement that each debit card purchase be at least a certain amount. However, we've seen more banks starting to implement a minimum requirement.

One of the latest banks to have this type of minimum requirement is Randolph Bank & Trust Company in North Carolina. Their Extra-Miles Choice Checking Account had been requiring a minimum of 12 debit card purchases with each purchase being a minimum of $5. Readers who have this account have reported being informed by the bank that the minimum purchase will be $20 effective in January. On the plus side, the number of debit card purchases is going down from 12 to 6. So instead of making 12 purchases of at least $5 each, the customer will have to make 6 purchases of at least $20 each. The total in purchases now needs to be at least $120 instead of $60.

This requirement is similar to a reward checking account that I just recently found in New York City. It's from The Berkshire Bank's Power NOW Checking which requires debit card purchases totaling at least $100 per month to qualify for the high interest rate.

I don't believe these accounts from Randolph and Berkshire are powered by BancVue, the company that powers the vast majority of reward checking accounts. BancVue's reward checking accounts don't have this type of minimum purchase requirements since BanVue believes this is a violation of a federal regulation (I don't know of the specific regulation). However, banks are allowed to close accounts if they feel the customer isn't using the account in the true spirit of the program (i.e. too many small debit card purchases) Last year I described a case in which City National Bank informed a customer that her debit card purchase history didn't appear to be consistent with a primary checking account.

Why do banks want to see larger debit card purchases? Around one percent of your signature-based debit card purchases are paid to the banks by the retailers. That is what's called an interchange fee. That helps to pay for the high interest rate. I have more details on the math behind this in my post on the future of reward checking accounts.

Before reward checking, most reward programs were based on the amount you purchased. Just like cash back credit cards, if you spent $1,000, your reward may have been 0.5% or $5. In those cases, the banks didn't have to worry about small purchases. Only the merchants were concerned since they could be charged 10 cents for a 50-cent purchase. The merchants achieved a victory last year with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Merchants are now permitted to set a minimum purchase amount up to $10.00 for credit cards. Note, this doesn't apply to debit cards.

As reward checking customers, we don't want any explicit or implicit requirements on our debit card usage. However, these accounts have to be profitable for the banks or they will either stop offering them or reduce the rates. I actually prefer the implicit requirement of using it as a primary checking account. That allows me to include a few small purchases (like for coffee) with a few larger purchases. The new requirements at Randolph would be difficult for me.