Reward Checking Accounts and Debit Card Requirements

FDIC Bulletin CHIRO- 05-2007 forbids banks from setting a specific dollar value on a debit card transaction.  How are the banks getting around this stipulation?

They are likely still allowing the use of the debit card for purchases of any amount.  You simply do not get the high interest unless you meet the reward requirements. 

To Anon#1,

According to this link,

http://www.bankersonline.com/operations/fdic-chiro-05-2007.pdf

"A bank may pay a higher rate of interest for meeting debit card, internet, or
automatic transaction requirements, but may not completely eliminate the payment of interest on
interest bearing accounts for not meeting these specific requirements."

So as long as a bank pays ANY interest (e.g. 0.05%) as opposed to the "rewards" rate, it looks like they can get away with it.

"...debit card purchase history didn't appear to be consistent with a primary checking account"

 

I don't use a debit card AT ALL (and don't even have one, just a plain ATM card) for my primary checking account.  It irks me that banks believe that using one is normal activity for everyone!

Yes, I do use debit cards for rewards checking account, but there is no way that I'd even own them if it weren't for the higher interest.

Anyone know if adding $20 cash back to a debit card purchase would meet the minimum purchase requirement?  This is a normal option at the register for PIN based transactions.

I continue to make 24 small transactions per month. at least 18 of them are 3-10 cents each.

I have had both accounts for over a year and other than the occasional call to ask if my card was stolen, I havent had any problem.

And its OBVIOUS they are not my "primary checking" accounts.

If my bank/cu had these requirements, I would close the account.

But, if I was a bank or CU, I would certainly try to discourage people like me.

I had 3 accounts at one time but that was too much to have to worry about. I found myself obcesing about knocking out my transactions.

I still try to knock them out by the 6th or 7th of the month anyway. (One closes around the 25th or something)

 

My favorite place is Samsclub. nowhere else can you knock out 10 transactions at once without their system cutting you off.

What can be purchased at Samaclub for 3-10 cents?

I would prefer the explicit minimum spending limits.  It would make it clear what the bank wanted.  A tiered interest rate like on cash back credit cards would be acceptable also. 

I think many banks find that the Rewards Checking isn't as profitable as they were lead to believe it would be and then they either drop the interest rate they are paying, stop accepting new accounts or terminate the program.  A Rewards Checking account paying less than 1% over internet savings account rates usually isn't worth the trouble.

"I think many banks find that the Rewards Checking isn't as profitable as they were lead to believe it would be and then they either drop the interest rate they are paying, stop accepting new accounts or terminate the program.  A Rewards Checking account paying less than 1% over internet savings account rates usually isn't worth the trouble."

I agree 100%. I suspect that in the long run, reward checking IS a "gimmick" because I think few banks that implement it and have a long enough history (say, a year or more) to review the P&L will be able to sustain a rate that is much more than 1% above an internet savings account. And for the paltry amount of money that most banks now limit you to in a rewards checking, if you have any significant amount of money then the debit card hurdles are not worth it.

I project that in 2-3 years, whether interest rates have risen or not, reward checking will have run its course. I hope I'm wrong.

"Anyone know if adding $20 cash back to a debit card purchase would meet the minimum purchase requirement?  This is a normal option at the register for PIN based transactions."

Yes, that would do the trick.

 

It just seems like this whole Rewards Checking Game is a lot of mice running around for very little reward. Sure 4% (if that) is good in this environment, but the problem is, there's usually a very low max (25k). If you have serious savings, ,why not put it in a 5yr CD for 3% (still out there) and you don't have to run around like a chicken with its head cut off. I'm all for doing a little extra effort for more reward (I myself have my money in a CD that I had to travel for to get), but it sure beats the alternative. For those people who have serious savings... say they have $150k in total savings. What, are they supposed to spend their days juggling the requirements for 6 different bank accounts times how many ATM transactions each month for each bank? And hope that one or all of the banks don't lower their rate this month? And if your savings is only $25k say (certainly nothing to laugh about, but I'm being brutally honest here) to where you'd only need to have one of these accounts and not have to spend time juggling multiple accounts -- then is the difference between 3% and 4% for $25k worth all that hassle? Again, I'm someone myself who has no qualms about doing extra work for extra rewards.. but the payoff difference for the amount of work, constant monitoring -- and hoping that the rates don't change as they have been doing -- just does not seem worth wasting your life on. I'm not writing this to flame, and I don't begrudge anyone doing this... it's just beyond me when you consider the huge amount of juggling accounts, monitoring and work for a small difference (for instance, in putting your money in these accounts vs putting it in a 3% CD for 5 years guaranteed and not going nuts about it).

 

To CommonCents: firstly, I'm talking 5% vs. your 3%. Secondly, I need my money liquid at this stage of my life.

Perhaps many of us are using Rewards Checking as a way to wait out the rise in interest rates. Right now, I would be reluctant to accept a 5-year CD at 3% when I can juggle a few Rewards accounts and do better. And if CD rates rise in the next 6 or 8 or 12 months, then I won't feel so badly as I would had I locked my cash in a 5-year rate. 

Probably some of this depends on age....I have the time to run around like a headless chicken while I'm waiting, and since I remember when CD rates shot up to 16% in 1981, I don't mind parking in Rewards for the time being.

And before someone jumps on me: no, I do not expect to see rates that high again, but for a 5-year term, I think I'd hold out for at least 6%.

I would say that juggling ten $25K accounts is very easy, 15 gets to be a bit of exercsing; 20 may be running around like a headless chicken:D

Seriously, what's a few clicks to get 5% interest rate in this computer era?  I am also doing it for my mental exercise.

To 51hh,

Seriously, what's a few clicks to get 5% interest rate in this computer era?  I am also doing it for my mental exercise.

What do you mean by this? Do you not use your debit card at a store for the required number of debits. How do you do this on the computer to make it count as your debits.

To anonymous #15:

Usage as a credit card counts as well as usage as a debit card. 

Obviously, there are folks on this blog that do have all the time in the world to juggle multiple reward checking accounts to maximize their interest income.  Most of these individuals are not holding down a full time job, and it is as much a game to them as it is a necessity to get the higher interest rate.  These same individuals are ones who regularly monitor the interest rates for all the banks, and let us know on this blog when any bank, whether local or national, changes their interest rate.  We are the beneficiaries of some of that posted information, however, it is prudent to always check out the information from the direct source before acting on any tip you read on here. The other thing that I find rather odd at times is that some of these same individuals keep mentioning 5%APY interest rates on their reward checking accounts.  Face it, no new accounts are available nationwide with those kind of rates, and those that have accounts with those high rates acquired them, in some cases many years ago. Locally, there are just a few institutions that offer these rates on new accounts, so, it would be better if those with the higher interest rates didnt keep bringing the 5 percent rates up on the blog, because most folks don't have them, and have no way of getting them today. I think it is great if they do have the higher rate reward checking accounts in their portfolio, but the numbers don't work out for cost benefit with the lower interest rates available now, vs. what the higher 5 percent rates are allowing a very few individual to acheive with the reward checking accounts

Anon. #17:

Point well-taken.  BTW, I, for me, do hold a 24/7 job that requires my full-time dedication.  RCA is just my off-work amusement.  I enjoy managing money in a prudent manner. 

It is easy to discern facts from opinions/conjectures.  All rate changes are facts (or after the fact).  Conversations with CSRs are "to be verified."  Hopes and opinions are just that.  Yes, please treat all these as inputs to be verified by oneself, just as any web-related information.

The 5% RCA offer was mostly used as a debate/comparison point when the 3% CD (etc.) was brought up.  The point was that there exists 5% RCAs, even though it may not be attainable nation-wide or via direct/obvious route/means.  It further serves as an encouragement/motivation for people here to do one's own research and endeavor, if desired.  That said, even the 4% RCA far exceeds the non-liquid CD rate nowadays.     

Anon. #15:

For example, one can pay utility bills numerous times online.  And insurance companies, etc.  It is YMMV, but think innovatively.

Fundamental rules:  Use debit card only for things that one would pay anyway for daily living (i.e., no extra spending).  And do not make extra effort that is not worthwhile.  For example, I would not pay gasoline multiple times in such a cold weather vs. paying something online in the warmth of my own home.

Hope this helps:-)

Thank you. Now that you have posted this reply, I believe that you may have posted this in the past. THANK YOU FOR EXPLAINING AGAIN.

New requirements for Endura CU:

Effective 1/1/2011, 15 debit card purchases of at least $10 each and direct deposit of $2,500 or more per month required to earn highest bonus rate on this account.

To: "Anonymous - #9"

"I project that in 2-3 years, whether interest rates have risen or not, reward checking will have run its course. I hope I'm wrong.

 

I believ this RCA drama will end by the end of 2011.  I dont mean that RCA will not exist after 2011 but I mean that the interest rate difference between RCA and other highest achievable interest rate (online savings etc) will be so small (<1%) that it will not be worthwhile to jump through the hoops of RCAs...
"

Interesting to read everyone's replies. As I wrote originally, I don't begrudge anyone for doing the RCA game, but to me it just seems way too much work and monitoring for the paltry real-world difference it makes -- and I looked into doing it recently when it came time to move my funds. First, as someone else posted, there is virtually NO 5% RCAs anymore -- you can count them on one hand, and you can only qualify if you live locally to them (let alone the MULTIPLE ones you'd need with large savings). The best you can do now is 3.5%-4% unless you live by one of the handful of banks that still offer 5% -- and certainly 3.5%-4% is what you'd generally be stuck with if you need numerous multiple accounts. Plus, as others have mentioned, the already-low 25K cap on them is being lowered to 10K already at some of the banks -- and even those banks that aren't doing it now, it seems to me that the writing is on the wall waiting for it to happen elsewhere.

As I said, I recently looked into the possibility of doing the RCA game, but decided against it mighty fast. Here's why: I had the bulk of my savings mature recently (back in October) and it's a pretty good amount (I have no stocks, bonds or any other investments, just CDs). To move all my savings to RCAs which were/are currently paying in the 3.5%-4% range, I'd need around 10-15 accounts if the caps were 10K-25K. At best, that's doing 100 transactions a month, at worse (especially if the majority of the accounts lowered their cap) it could be as much as 200 transactions a month -- all for 3.5%-4% (that's nationally available from multiple banks/CUs). And interest, caps and terms can change at ANY time -- nothing guaranteed. I thought, "do I really want to spend my free time this way?" Especially when the other option in October was for a 5yr nationally-available CD that paid 3.25%, allowed unlimited add-ons, and had only a 90day penalty for early withdrawl. Though available to anyone anywhere, you had to open up the CD in person, so I travelled there to do so (inexpensive, and my one-time "work" to get a higher rate) -- as others on DA posted that they did as well. So while my funds aren't "liquid", at least the 3.25% rate is guaranteed for 5 years (the bank is pretty healthy), and if an emergency (or a super deal) comes up in the future, I only lose out on 90 days of interest for the amount taken out -- and I can add funds to it anytime. And I don't have to drive myself (or my credit rating) crazy trying to do 100-200 transactions every month to get the difference between 3.25% and 3.51-4% every month -- as long as that difference lasts.

I think that there are some instances where it might (slightly) be worth doing an RCA. For instance, if the savings aren't that much, and you really, really need it to be liquid. But I don't believe for most people it's worth it. And my own views on interest rates are that locking it in for 5 years in this environment isn't that bad -- it means I'm guaranteed it, with only have a 90day interest penalty if I want to close or withdraw before those 5 years. But that aside, I also don't believe interest rates will go up until after quite a long window of RCAs either being gone, or with far lower rates/caps. The lastest round of quantative easing from the fed shows that interest rates are going to be low for quite a while, and while I think in a few years they might start rising, I have zero confidence that even 3.5% or 4% RCAs will be available 6 months from now if rates stay this low.

Just my thoughts. Again, I'm not flaming here, and for those that enjoy doing RCAs, I say more power to you. But unless you absolutely must, must, must have your money liquid, I see it as pretty much a waste of time for the difference you'll get -- especially when that difference can be taken away at any time with little notice (multiply that by the number of banks and accounts you'd have to deal with). But if it works for you, go for it!

 

Just two quick things I forgot to write in my post above: I didn't have an RCA account, but recently I had something similar -- a "high-interest" online savings account. I only had $100 or so in it (it was kind of an extra account) but watched as the bank dropped it from 3% a year ago, to 0.75% recently. And RCAs can easily suffer from the same thing -- the banks can change the terms, rates, and caps at any time. Finally, I want to second what someone else wrote about the people and contributors here at Deposit Accounts: I really appriciate those who follow and post the deals that they find (and I do as well when I see something good advertised). Because there will be someone out there who can use the information. This is a great website with valuable contributions from its users -- not to mention Ken, who does a bangup job running it.

 

CC:

Great write-up and very reasonable approach; thanks much for sharing it with us. 

I guess that I will have few alternatives when all my RCAs go under 4% or 3.5%.  I really hate CDs:-)  Like my famous "lover/wife" said: I will think about it tomorrow (when the time comes)...:D

To rj, post number 6.

 

What in the world can you buy for 3 to 10 cents???

CommonCents#23 - agreed. The only problem I see with your approach is a possibility of your CD bank refusing a withdraw.

CommonCents#23,  your approach is logical, and Borodarda#27 the only other caveat I would add is ... or the bank failing and an acquiring bank no longer honoring further add-ons (not sure if that can happen but am fairly certain FDIC rules do not require acquiring banks to continue to honor terms of accounts).  

Unfortunately, Inter National Bank in McAllen, which was offering the excellent rate in October, currently has a two-star Bauer rating and has been operating under a “formal agreement” since 9/2009 according to the current “Unofficial problem bank”.  I have an add-on CD with an institution whose rating has also declined to two stars and is on that same list as of 9/2010.    CC#23, I hope we both avoid having to find another home for those funds in an environment where rates continue to decline.    I am grateful that it is not the bulk of my savings.  

We are of course lucky to have the problem of determining how best to invest our savings.  All we can do is see what is available "out there" (with many thanks to Ken, who does a superb job keeping us informed, as well as other contributors on this blog who share other opportunities available), consider all the factors, make our own judgement of what the future may bring, and decide on a best course of action given our circumstances. 

I wouldn't presume to tell people that they should use RCAs (Reward Checking Accounts).  All I can say is that for me, it's the right decision -- at the moment.  If the RCA rates dip so low such that the rate differential between RCAs I can get versus non-RCAs available results in an interest earnings amount that isn't worthwhile to me, and/or if the requirements of my RCAs become too onerous, then I'll re-evaluate my decision.

To say that RCAs are doomed in the long-term is speculation.  To say or imply that RCAs have suffered the degree of rate drops that non-RCAs have is, I believe, generally incorrect -- again, at least for me.  If I were just starting out and had no good RCAs available to me locally, my answer might be different.

Looking at long-term CDs at a decent rate and which offer a minimal early withdrawal penalty is a good idea, but I'll bet the possibilities are much different now (December) than they were back in October.  For now, keeping my money liquid seems the best choice.  As long as I can continue to rate-chase to find decent RCA deals -- you have to be willing to seize opportunities quickly as they probably won't last (see Randolph Bank, initially available to all, 4.75% guaranteed through December, for an example) -- then I will continue my RCA investments as long as possible.

It will be interesting to see what happens with Randolph Bank come January 1; we know about the upcoming change from 12 debit card transactions at a minimum of $5/transaction to 6 debit card transactions at a minimum of $20/transaction, but we don't know what the interest rate will be, but I'm looking for alternatives should Randolph lower their rates too far for me, probably sub-4% APY.  If I don't find any alternatives, as always, I'll re-evaluate my options.

For me, this is a far better approach than making generalizations and basing my financial decisions upon those generalizations.

I have two Randolph accounts and I rarely make purchases over $20.  Trying to figure out how I'll get 12.  I get gas once a week and that's usually my highest expense at about $30 - not even enough to split into 2.  The other places I normally go are restaurants (normally around $5-$10), so no cash back.  I really don't buy much at the drug store, but when I do, I will do cash back.  I'm thinking I can turn my small restaurant purchases into one or two $20 gift card purchases.  Any other ideas on how to get 12 purchases without spending money I wouldn't otherwise spend?

It sounds like your gas purchases would take care of two transactions per Randolph Bank account.  That leaves 8 more total transactions for your accounts.  Don't you have bills for your phone, cable TV/Satellite, Internet, water, garbage, newspaper subscriptions and so on?  If so, thinking of splitting those bills into $20 increments.

Do you contribute to charities?  Consider making a $10/month donation to a couple of your favorite causes.  Do you budget for holiday/birthday presents?  You can purchase gift cards for distribution throughout the year.

There are lots of creative ways to come up with a total of 12 debit card transactions per month, each totalling $20 or more.  You've already mentioned some of them.

To Stewie - #3, if you read FDIC Bulletin CHIRO- 05-2007 copied below, you might figure out the irrelevance of your posting. Anonymous #1 is correct, and is apparently of professional calibre for knowing sources.

QUOTE:  "Banks may not require that transactions be of a certain dollar value (individually or in aggregate)."

http://www.bankersonline.com/operations/fdic-chiro-05-2007.pdf

Bulletin Number: CHIRO-05-2007
Potential Violations of Truth in Savings Associated with “Rewards” Checking Products

Financial institutions have begun offering deposit products with higher-than-market interest
rates, which can be earned by customers if they meet specific transaction-based criteria. Often,
these specific criteria involve conducting a certain number or dollar amount of debit card
transactions, utilizing an automatic bill pay service, or conducting a certain level of internet
banking transactions, all on a monthly basis.

However, some such programs condition the earning of interest on these criteria in violation of Regulation DD, which implements the Truth in Savings Act. A bank may pay a higher rate of interest for meeting debit card, internet, or automatic transaction requirements, but may not completely eliminate the payment of interest on interest bearing accounts for not meeting these specific requirements.

Similarly, a bank may have a requirement for 10 such transactions, but may not specify that each transaction be at least $100 or more, for example.

Important points to remember are:
• Banks may not eliminate the payment of interest on anything other than minimum balance
requirements.
• Banks may not require that transactions be of a certain dollar value (individually or in
aggregate).
• Banks may implement bona fide tiered rate deposit accounts, where a higher rate may be
obtained if conditions other than a minimum balance are met.
• Banks may require a certain number of transactions in a given account cycle in a bona fide
tiered rate account to obtain a higher level of interest.

Banks with existing Rewards Checking programs should ensure that their programs comply with
the important points identified above and Regulation DD. Examiners have cited violations of
Regulation DD for failure to comply with the above restrictions. Banks considering these types
of deposit products should perform appropriate due diligence to ensure they meet regulatory
requirements.

If you have any questions concerning this information, please contact us by e-mail at
SCANS@fdic.gov or call us at the Chicago Regional Office Banker Hotline 312-382-6926.

I don't have any bills other than my credit card bill because I rent a room in a house and everything is included in my rent! I think I'm going to end up doing gift cards for most of it so that I can get the small fast food transactions to add up to a monthly $20.  @GLXPass, like the idea of doing charitable contributions this way.  (Of course, I think you meant to say $20 instead of $10, in order for it to count for Randolph.)  It will definitely require some creativity, but I should be able to do it without spending extra. 

"Anonymous - #32, Sunday, December 12, 2010 - 6:49 PM

To Stewie - #3, if you read FDIC Bulletin CHIRO- 05-2007 copied below, you might figure out the irrelevance of your posting. Anonymous #1 is correct, and is apparently of professional calibre for knowing sources.

QUOTE:  "Banks may not require that transactions be of a certain dollar value (individually or in aggregate)."

Sorry, #32, but the regulation is ambiguous, and #3's interpretation may very well be correct.  Why else would FDIC insitutions such as Randolph Bank impose minimum transaction amounts on debit card transactions to meet Reward Checking Account requirements?  You can bet their attorneys carefully evaluated this regulation before proceeding, and Randolph Bank had had their $5 minimum for a number of months.

The section you quoted was of course out of context and probably should have been qualified with a phrase such as "in order to earn interest."  Reading the whole bulletin as you also quoted puts the phrase into context.  I will concede, however, that the phrasing is ambiguous, and, believe it or not, at one time I agreed with you.

To various posters who asked what I buy at Sams club for 3-10 cents.

Gasoline.  Im sorry, I should have made that clear. Many stations cut you off after 2-4 small purchases. Ive even had indians run outside & cuss me out in language I couldnt understand. Luckily, I am 6-5,200 pounds so an angry 5-7 130 pound indian running out to me doesnt really scare me.

To the posters that say they dont have time for the "game". Well, I think i calculated the excess time versus the aftertax excess return and I was compensated at a pretty high hourly rate. And thats just having 2 accounts. If I had 20, i suspect the aftertax excess return would be even higher.

It works the same way with Coupons. A little time & effort gives a nice return. I actually ENJOY it so even if I was only being compensated at $15 an hour, I would still probably do it.

What bothers me with some couponers is they vastly overstate their savings.

If you pay $7.59 for 2 items (BOGO) that is regular $7.59 at the grocery store but $4.75 at walmart everyday, the savings is NOT $7.59, Its $1.91.

So just because my publix receipt says I saved "x", in reality, I saved far less. But, still worth fooling with if you enjoy it. And even if you dont.

 

I tried to reopen my checking account but couldn't cause social security card had my maided name on it so I had it changed now they say I have to wait a year what bomb what does my social have to do with my money in bank bad bad bank