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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Customers Being Kicked Out of Their Reward Checking Accounts

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There remains several nationally available high-interest reward checking accounts. There used to be many more. It has been common for banks to start offering their reward checking accounts nationwide. After several months, the banks decide to restrict accounts to only residents of their state or market area. Most banks have only restricted accounts to new customers. Existing out-of-state customers have been allowed to keep their reward checking accounts. Some examples of these banks include Bank2, First Arkansas Bank & Trust, Danversbank and Coulee Bank.

There have been a few banks that have not only restricted new accounts, but have also forced out existing out-of-state customers. The latest example is Liberty National Bank in Oklahoma. I first reported on its reward checking and savings accounts (Kasasa Cash and Saver accounts) last November. The bank allowed anyone in the nation to open these accounts until last May when new accounts were limited to Oklahoma residents. The bank has now decided to go further and transition existing out-of-state Kasasa account owners to a non-Kasasa free checking account.

Fortunately, this kind of action by banks have been rare. The only other bank that did something similar that I can remember is Arizona Bank & Trust which closed the reward checking accounts for out-of-state customers. As I mentioned above, most banks have only restricted new customers. Existing customers have been allowed to keep their reward checking accounts.

It's interesting that so many banks have decided to start offering their reward checking accounts nationwide to only restrict them locally after less than a year or two. Perhaps the banks learn that the debit card interchange fees are not as large from out-of-state customers. The banks are hoping that the customers will be spending at least $1,000 each month with their debit cards. A $1,000 of purchases can result in around $10 of interchange fees for the banks. That can help pay for the high interest especially if the checking account balance is under $10,000. I would guess that a higher percentages of out-of-state customers spend less and maintain larger balances.

With the new debit card regulation that's scheduled to take effect in October, we may see more banks and credit unions restrict their accounts to their market area. Even though the debit card regulation is not suppose to impact small banks and credit unions (which offer the vast majority of reward checking accounts), it's generally believed that debit card interchange fee revenue will eventually be impacted even for small banks. Hopefully, banks won't be giving a boot to existing out-of-state customers.

Related Pages: reward checking account, Liberty National Bank (OK), Wichita Falls, Oklahoma City

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Comments
Anonymous
Anonymous   |     |   Comment #1
Don't forget Malvern Federal, which offered it nationwide, then restricted it to a few states, then cut the rate way back and then eliminated the account altogether!

It seems that some of these banks are finding out that the projected revenue from Rewards Checking, particularly when offered nationwide, isn't in line with reality.
pearlbrown
pearlbrown   |     |   Comment #2
If the banks have an expectation that customers will spend at least $1,000 each month with their debit cards so the interchange fees will offset the high interest (for those customers who actually meet the other qualifications) then they should disclose that just as they do the other requirements (number of transactions, Estatements, etc).  Pelican State just did something similar - starting 8/1 there is a minimum $300 monthly spending requirement per account.  I was not happy, but would rather know that upfront than have a financial institution close my RCA account because I didn't meet a requirement I knew nothing about. 
51hh
51hh   |     |   Comment #3
Please also be aware that there are some rules/laws that specifically prohibit banks/credit unions to set lower dollar limit on debit card transactions; so many are walking a tightrope to impose such a limit.
viking
viking   |     |   Comment #4
Coulee Bank closed some of my accounts when they changed their rules and only allowed one account / person (I had several).
ogrady
ogrady (anonymous)   |     |   Comment #5
hay rhett making any dinero these days ?
mrvirgo
mrvirgo   |     |   Comment #6
Heartland Community Bank of Arkansas has grandfathered my three out-of-state accounts even though they now allow only one rewards checking per social security number. Since 2008 they've gone from 6% capped at 30K down to 3% capped at 15K. However, they have never given me a moment's grief in spite of some pretty small purchases to meet the required number per cycle. I only wish they were my local bank here in Los Angeles. That's how good they are!
51hh
51hh   |     |   Comment #7
Hey OG,

It's been ok.  Tough stock market, tough interest environment, tough job, tough summer heat, tough mood, tough, tough, tough...:D

Enjoy the Summer.
tough  steak
tough steak (anonymous)   |     |   Comment #8
hope not xmas just around the corner
O-Qua Tangin Wann
O-Qua Tangin Wann (anonymous)   |     |   Comment #9
Morell & Janes Checking down to 1.06%

~O-Qua Tangin Wann
Anonymous
Anonymous   |     |   Comment #10
A couple of other things might be going on.   Most of these banks are small bank and after awhile they may get overwhelmed with new accounts and new deposits.   These banks can only hold so many new deposits and after awhile they have to restrict the account to their local market.   Also, there are a lot of people who "game" these accounts just to get the high interest rates.   So, they will do 10 transactions for 10 cents and then make an electronic deposit for 10 cents and collect the high interest.   So, the bank would rather have a local customer doing that than some customer in a distant city that has no other business with them.  The bank really doesn't gain anything from the customer that lives a thousand miles away gaming the account. 
RJM
RJM   |     |   Comment #11
These banks have to make money. Cant just be giving it away forever.

I am surprised that I have never had any of my banks give me problems over my sub 10 cent purchases.
Anonymous
Anonymous   |     |   Comment #12
Today Bank of NY Mellon announced it will start charging "large depositors" to hold cash due to a sudden increase in dollar deposits prompted by fears among its customers.

Next will be the regular customer like you and I. Don't expect any good rates for a while.
Anonymous
Anonymous   |     |   Comment #13
Another bank which eliminAted out of state rya holders is Countybank in SC.
Anonymous
Anonymous   |     |   Comment #14
It's inevetable that these products will fail over time. The banks are offering an uneconomic rate (often well in excess of their asset yields) to attract deposits, in the expectation that many account holders will not satisfy the conditions and therefor not qualify for the higher rate. But over time they attract a preponderance of rate-obsessed mercenaries, who will take the trouble to charge a cup of coffee to their debit card daily, in order to earn the higher rate. Eventually these customers represent a significant proportion of account holders and the bank can no longer afford the product. They have been outgamed. Restricting to in-state culls the most mercenary, who have no interest in a true checking relationship, but just want a high rate liquid account.
Anonymous
Anonymous   |     |   Comment #15
Kasasa Account Holder,

It has been brought to our attention that you currently have a Kasasa Cash account in which your spending behavior does not reflect the true spirit of the account.  We began offering this account to allow our customers to earn interest stemming from the money Jeff Davis Bank would save through our Kasasa accounts.  Unfortunately, some accounts have only been opened to take advantage of our interest rates and are not being used as a checking account.
Due to these circumstances, we will now switch your Kasasa account to a non-interest bearing free checking account on November 30, 2011.  

We sincerely appreciate your business and we hope to continue to serve you in the future.  If you have any questions please call 1-800-789-5159.
 Thank you,
  Jeff Davis Bank