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About Ken Tumin

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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Minimum Reward Checking Rate For It To Be Worthwhile?

In my 2010 poll I asked what's the minimum yield a reward checking account has to offer to be worthwhile. For those who are primarily concerned with the best interest rates for their liquid accounts, reward checking is only worthwhile if it offers significantly higher rates than savings accounts. The rate spread between the savings account and reward checking account has to be high enough to justify the extra work that reward checking requires. In 2010, only 10% of those who took the poll selected a minimum yield below 3%. Most everyone wanted a yield of at least 3%.

Rates have continued to fall over the last two years for both reward checking accounts and internet savings accounts. Unfortunately, it's now much more difficult to find reward checking accounts with a top yield of at least 3.00% for balances of at least $25,000. The highest yield on a reward checking account that's nationally available is only 2.52% at ABCO Federal Credit Union (as of 6/1/2012). Most of these nationally available reward checking accounts have yields between 1.00% and 2.00%. With several internet savings accounts with yields around 1.00%, the advantages of these reward checking accounts are diminishing.

If your reward checking account can pay a rate 1% more than your internet savings account, that will earn you an extra $250 for a $25K balance over a year. So if your internet savings account pays 0.80%, perhaps a reward checking rate between 1% and 2% may be worthwhile to you.

Poll Question

So my poll question for today is a repeat of the 2010 poll question: What's the minimum yield a reward checking account has to offer to be worthwhile? Assume that the balance cap is $25,000. Have you lowered your expectations for reward checking since 2010?

Future of Reward Checking Accounts?

There were some rumors that the FDIC was adding new restrictions on reward checking accounts, but as I described in my recent post, I have found no evidence of this. Reward checking accounts have been around for over 5 years, and banks and credit unions continue to come out with new reward checking accounts. Of course, rates and balance caps are lower than what they used to be, and some no longer provide a significant advantage over the best internet savings accounts. However, it should be remembered that most of these are free checking accounts with ATM fee reimbursements. So even if you don't use a reward checking account as a savings account, you may still want to use it as a local free checking account.

For an overview of reward checking accounts, please refer to my blog post, 10 Common Traits of High-Yield Reward Checking.

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Anonymous   |     |   Comment #1
I have 4 RWC accts paying 2.01% on $25k and my Ally paying .84%.  That is a worthwhile spread to me in this day & age especially on that much cash.   However, any lower and it won't be.  Making 40 legit transactions in approx 30 days isn't exactly easy.
Anonymous   |     |   Comment #2
#1  That seems like a nightmare to me having to manage all the debits and autopays etc.  What I don't like most is that one does all this work and can't be sure how long the 2% rate will last.  I have never used a debit card and would not do it just for these type of accounts.  Those 40 transactions you have to do would drive me up a wall.  I just guess we all do what we have to do to get what we need.  Glad you can handle it.
51hh   |     |   Comment #4
Never liked RCA (especially the debit transactions), but yield to it due to high interest.  4-5 years of "torture" is good enough for me.  So I am bailing out as the RCA interest rate further declines.

The worst aspect of RCAs is the liability for fraud.  Imagine doing several hundreds of debit transactions a month... The likelihhood of fraudulant usage grows higher as the number of debit transactions increases...

I still own many (4%, $25K) RCAs and a lot of (3.5%, $25K) RCAs.  (3.5%, $25K) is my lower limit.  Longing for the day that I get fully released from RCAs!:D 
Anonymous   |     |   Comment #5
Reward Checking is not worth it unless your buy stuff every day and doing that kinda defeats the point in saving.
pearlbrown   |     |   Comment #6
51hh, I can definitely understand how after 6 years of doing RCAs you might be weary of the details.  I opened my first ones in October 2010, and because the potential for fraud was my biggest concern, too, automated the tracking of progress against account requirements from the start.  That has made it easy to reconcile the banks' balances and transactions to my own records daily.  Also, not having to keep up with several hundred transactions like you (generally my total requirements have been under 165 transactions/month), has helped.   Still, it takes active involvement each day.  My lower limit is (2%, $20K), and although I'm not ready to leave the party yet, I definitely hear faint strains of "Goodnight Sweetheart" playing. 
darkdreamer4u   |     |   Comment #7
I had a good run for some years. Then last year, I bought a home, so most of my cash got invested in my property. I still actively manage 2 RCA's, with one being Randolph Bank with just 6x$20 transactions, so that one is easy to do by paying the cable bill online in 6 chunks. I even prefer that one over other, higher paying RCA's I still own because of the convenience. So I really only have to worry about just 12 debit card transactions for the other active RCA - very feasible compared to 40-50 in the past.

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