Customers Being Kicked Out of Their Reward Checking Accounts

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.