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10 Years of High-Yield Reward Checking


10 Years of High-Yield Reward Checking

I’ve been reporting on high-yield reward checking accounts for 10 years now. I thought this would be a good time to mark this milestone.

Time sure has gone by fast, I started blogging on bank deals in 2005, and in 2006, I began coming across high-yield checking accounts from community banks and credit unions that had a catch: the high-yield had some activity requirements. Debit card usage was the main one that required some effort (see my reward checking overview for more details of the activity requirements). For savers who wanted to maximize interest without locking it into a CD, these seemed like a good deal. In many cases the yields were higher than the best internet savings accounts.

When I first began reporting on these reward checking accounts, there was some concern that these were just gimmicks that wouldn’t last. After 10 years, it’s safe to say they did last. As of August 2016, we list 926 accounts in our reward checking account table. These accounts are offered by banks and credit unions in all parts of the country.

The zero-interest rate policy (ZIRP) forced internet savings account rates to plummet from 5% to around 1%. The rate environment did impact reward checking, but for many cases, reward checking has continued to offer savers an alternative to internet savings accounts. For the last 10 years, it has been fairly easy to find reward checking accounts with rates of at least 100 bps over the best internet savings account rates.

ZIRP impacted reward checking in a way that we didn’t see with internet savings accounts. In addition to rate cuts, banks reduced the balance caps of their reward checking accounts. The cap is the maximum balance that qualifies for the high yield. The portion of the balance over this cap earns a much smaller interest rate. Back in 2006 and 2007, some banks were offering high yields for all balances of the reward checking accounts. As we entered into ZIRP, the reward checking balance cap became more common with $25,000 being the most common cap. Now, the $10,000 cap seems to be the most common.

If you were one of the early adopters of reward checking, you have probably seen more than just cuts to rates and balance caps. Reward checking didn’t thrive at all banks and credit unions. Some banks and credit unions have ended them which has been common after an acquisition or merger.

An even more common occurrence has been banks that have changed who is eligible to open an account. Several banks launched their reward checking with online applications that allowed people from any state to apply. These often didn’t last, and that was especially case for the better reward checking deals. It was common to see banks reduce the geographic eligibility to just their state or local market area.

Banks have also occasionally added requirements. One typical added requirement was to use the account as one’s “primary checking account” without most debit card purchases being very small amounts.

Instead of writing one large 10-year anniversary post, I plan on writing a series of posts reviewing the last 10 years of reward checking and looking to see what the future holds for reward checking.

Overview of Reward Checking & Our Reward Checking Table

In addition to this post, I’ve also written a post to provide an overview of reward checking. In addition to the basic overview, it shows how you can use our reward checking account table to find the best reward checking accounts available nationwide and in your local area.

Poll: How Many Reward Checking Accounts Have You Opened?

Have you opened a high-yield reward checking account in the last 10 years? If yes, how many have you opened? Please let us know by taking this poll. Also, if you have anything else to add about your experiences with reward checking over the last 10 years, please leave a comment.

I have a lot more to share on reward checking. Please stay tuned for future articles in this 10 years of reward checking series.

Anonymous   |     |   Comment #1
You have done a wonderful job.
James Barnes
James Barnes   |     |   Comment #2
The blog post for the CD Summary for August 16, 2016 cannot be accessed.  Please correct this.  Thank you.
moneysaver   |     |   Comment #3
RCA's have been a godsend the past few years, allowing savers to maintain ready cash in FDIC-insured accounts earning up to 3% or more, during a period when CD and savings rates have been nose-diving. I haven't opened a new CD in some years because of the low rates, but I've been expanding the number of RCA accounts I use. They've increasingly become the home for my "emergency fund" cash savings/reserves. And the reason I learned about this entire kind of account was because of Ken and Deposit Accounts. :-)
jimbeau   |     |   Comment #4
Since I think that debit cards are the tool of the devil, I've steered clear of the rewards checking accounts.   The consumer protections for debit cards still lag those for credit cards.

I'm too lazy to have to deal with keeping track of the number of debit transactions I've done each month.  If there was one that just required something reasonable like a single direct deposit each month, I might give it a look.  

Also, due to the automatic bill payments that are linked to my checking account, I don't like idea of having to change it if the financial institution's rewards policy goes downhill. 
Anonymous   |     |   Comment #5
It used to be good 10 years ago when the rates were 5-6% and no upper limit on the deposits, then came upper limits to 25K then came 5K and I was out when 25K ended and when the rates dropped to 3% or lower.
Anonymous   |     |   Comment #6
I have never found any rewards checking account worth the effort for the following reasons:
1. The interest rate is always capped and tied to many hoops.
2. I use credit cards for 99.9% of my bills in order to earn 2-7% cash back on every purchase and I would be losing all that cash back making the required debit card transactions each month(not worth it)
3. I use Ally demand notes 1.16% APY for my checking account and already earn interest with no debit card hoops or caps.
4. Many of these are attached to credit unions with limited ATM access and require opening yet another account to get the rewards checking. That account usually pays 0 or low interest and requires a balance to avoid fees.
5. Many of these require a number online bill pays and again I would be losing the 2-7% cashback on my rewards credit cards.
6. They also keep changing the rates and requirements in order to disqualify you from earning the stated interest rates.
So in summary they have never or will never be worth the effort. 
RJM   |     |   Comment #8
I'm not responding to anonymous directly. The system wont let me comment except by replying to someones post for some reason. (Ive been here for years and never into it before)

Ive had RCAs for roughly 9+ years. A little trouble to knock out the transactions every month. And I often wonder if the liquidity is really that valuable to me. Shouldn't I just get a longer term CD and not have to bother with 34 debit card transactions every month ?

My favorite of them, Lake Michigan CU has in the last few months made it harder to knock out my transactions in short order. Even with multiple calls to their "security" subcontractors.

Every month, I try to knock out 10 transactions in short order via gas stations and every month, they lock me out after a few transactions Usually a total of 5 (2 credit and 3 Debits or vise versa)

So I can never knock all 10 out in one day. Even at multiple stations.

Like the poster above, I never forgo my cash back for meaningful purchases so I only use these RCAs to game the system. (With transactions of $1 or less and usually less than 4 cents)

I recall one RCA that at one time, had a $100k limit for the good rate. That didn't last long, maybe a year or so and they forced us to swap out to above market CDs but when the CDs ran out, they didn't have any deals except a regular RCA via Kasaka or whatever its called and I didn't want to deal with another one. (34 transactions per month is my limit) 12+12+10

I will probably quit the 2 of the less rewarding RCAs before too long just because they only pay 2%. Hardly worth the hassle.

Another thing is all these extra accounts just means more paperwork every year at tax time.

That's why I wish we could find a bank or credit union that would admatch other institutions as far as CD rates.
51hh   |     |   Comment #7
Instead of showing examples, I would like to comment in general about the pros/cons about RCAs:

1. Difficult to get into a "nice" and long-lasting RCAs (i.e., high rate/limit); but it is a pro if one is fortunate, skillful, and creative.
2. Tedious to meet various requirements; but feasible with some existing means, one does not even have to venture outside to accomplish them.
3. It is possible to do both debit card transactions and still earn handsome cash rewards (say 5%) from a few credit cards.
4. The only con is that it takes one's first few days of the month (say half an hour for 4-5 days if one has more than 20 RCAs) online to meet those debit card requirements.  But the price paid is well worth it.  Imagine having "some" consistent RCAs with (4%, $25K) for more than ten years (starting with (6%, $100K) per account for initial years); just a generic statement.  Tax reporting is not too bad if most RCAs lie in 1-2 credit unions.

I have to admit that it is "to each her/his own" for RCA investments.  But it can be quite profitable for some.  I do not consider debit card usage as risk from my own experience (most are online transactions from the safety of one's home), just need to be on alert.  Some do not use ATMs for RCA accounts (e.g., I use BofA for ATM purposes).



Anonymous   |     |   Comment #9
Many RCAs reject purchases of $1 or less if done in one day. Now most of them require purchases throughout the month and more than $12 total.
RJM   |     |   Comment #10
If mine were to require $1 purchases and/or $12 total, I would close them for sure.

When determining profitability, 51hh, do you consider that compared to a longer term CD and the cash back you could have gotten using a 2% credit card ?
My 3 RCA accounts are just $15k each. 2 of them jut 2%. I think they originally had $25k limits but lowered them to $15k.
Even moderate/medium term CDs pay 1.5+% so when compared to them, the premium I get is just .5%.   Thats $75 a year on my 2% accounts. $6.25 per month per account before taxes.
And then when compared to various stock market options, it seems clear they arent really that good of deals.

Im probably too liquid for my own good. I remember 15-20 years ago getting margin calls regularly. Not because I had a lot of debt, but because I overspent my accounts for the short term. I was doing more short term trading back then but its no longer profitable. Back then, I owned a lot of lower priced stocks that were not marginable and my broker at the time realized I wasnt at risk for going belly up & putting the firm at risk but at the same time, they had to deal with regulatory bookkeeping.
I guess thing could be worse. I could be having to peddle worthless MLM shakes from scams like Herbalife.  Although never in my life have I been THAT gullible.
51hh   |     |   Comment #13
My first rule: Get in "many" (4%, $25K) RCAs and you will be all set.  My lowest RCA tolerance: (3.5%, $25K).  I do not like CDs that tie in my fund, not to mention long-term CDs.
Anonymous   |     |   Comment #11
Having multiple RCA's must be a paperwork or tracking nightmare. I have CD's with 4 CU's and 6 banks. I do chase CD rates and the paperwork/tracking isn't overwhelming. Having RCA's with multiple transactions would consume my time verifying transactions and ensuring that I meet monthly requirements. I could also see people making unnecessary transactions to meet the requirements. Also, some people may make impulse purchases because they frequently visit stores so often. It's your choice with investing where you want to invest and where to spend your time
Anonymous   |     |   Comment #12
I'm very much an RCA enthusiast, and maintain (with my wife) 15 active accounts (6 pay 3% and the rest 2% or slightly more, with balance caps of $15,000(5), $20,000(3),  and $25,000(7)).  With a system and habits in place, we find meeting the monthly transaction requirements quite easy and untedious, done almost entirely via gas and grocery purchases, and rarely amounting to less than $100 per account.  With a typical $50 food or fuel buy, we simply inform the cashier we wish to do 5 $10 swipes (the number and amount can vary depending on circumstances), something accomplished very quickly in most cases, - and we keep a strip of white adhesive tape attached to all our cards on which we immediately record what's just been done.  There's no paperwork or tracking nightmare whatsoever, and by now it's mostly utterly routine and unthinking.  The required monthly ACH transfers I can do all at once as credit card payments in about 20 minutes.  Yes, with the transactions one does have to be aware where one is periodically to ensure the numbers add up and one doesn't miss out (that never happens with us).  But again, system and habit render this pretty much painless, and the overall time necessary to manage the accounts not at all obtrusive.

Granted, some single and frugal retired bloke with parsimonious habits and minimal expenditures (even if having considerable resources) should probably find an alternative strategy for extracting even some minimal return on significant assets he or she might wish to keep in a liquid state.

But under certain circumstances and with the right mindset accompanied by a measure of calculation and intent, playing the RCA game on a fairly large scale can be one viable approach that doesn't have to be oppressive or humiliating.  It works for us.
Anonymous   |     |   Comment #14
You must be in the Eden of cashiers
Anonymous   |     |   Comment #15
Some can be a bit stymied at first, if never having previously faced the request.  But most know what to expect from me and we've even established an evident rhythm between ourselves with it.  There's honestly noting at all tedious or exceptional about this, and I've done as many as 8 or even 10 swipes for one transaction at times (not all on the same card, of course), which might take at most a couple of minutes for those who have some initiation.  Naturally, one should try to be courteous, and reduce the numbers when lines are long and people impatient.  But it's like with most routines one does every day, - the movements become stylized and very efficient, and for me and those I work with not a bother in the least,  - even if always a bit eccentric.
Anonymous   |     |   Comment #16
If you were in a grocery store near me and tried to do multiple small transactions at one time you would have many upset people waiting in line. I have 2 kids and work so no time for me to do this. Easier for me to use my charge cards. Get 5% on gas and 3% on groceries and 1% on all else. Also, no taxes on rewards. Looks like you and your wife have a system and the time to do this. Not everyone on this site is retired or on Social Security.
RJM   |     |   Comment #17
All my transactions are at gas pumps. Usually 2-5 cents each.  Some stations cut you off after 3-4 transactions. Some clerks come out & try to help as if you are having problems pumping gas and one foreign store owner came running out and said "you no more buy 4 cents only" so I quit going to his store.
One clerk called the cops on me so i had to explain to the cop what I was going and he ran my ID looking for wants & warrants.
Anonymous   |     |   Comment #18
To each his own, of course, but "time" just isn't a relevant consideration in what I'm describing, - that is, unless every minute is crucial to you in managing your schedule and responsibilities.  Swiping a CC through a machine reader takes a matter of seconds, and thus doing this a few times (or even a half dozen) rather than just once adds little to anyone's wait, - though I'll admit that communicating one's wishes along these lines to a grocery checker unaccustomed to the routine can occasionally be tedious.  It should be understood that what I'm doing is not multiple transactions per se, but rather making multiple payments, which is considerably more efficient.  Typically after a checker has scanned all my items I'll simply say "I'm going to do 3 (or whatever) swipes for 10, 10, and the balance", - they'll prime the card reader for No.1 and I swipe, and then so on for the rest.  I can accomplish this 5 times (if I wish) with a familiar cashier in about a minute.  Establishing the habit might seem at first much more disruptive to oneself and others than it turns out to be after a number of repetitions, - but even small changes to one's "normal" practices are forbidding to some people. 
Anonymous   |     |   Comment #19
You my be impacting people who have to wait behind you at a store or a gas pump. I'm surprised with the number and short frequency of the transactions that you don't get a fraud alert and shut your card down. I believe that debit cards have different policies when it comes to illegal transactions and responsibilities. Hey whatever works for you is great.
Anonymous   |     |   Comment #20
You're right in suggesting that too many clustered transactions on a card can result in it being locked (3 seems to trigger that in many cases), which is why I never do more than two swipes at a time on any one card.

Most people behind me in a store don't even know what's happening (even those immediately next in line), and the short extra time typically needed to process my swipes unobtrusive in any case.  Compared with the coupon redeemers I'm a picture of speed and efficiency.
Anonymous   |     |   Comment #21
If "you" use a credit card it is a nonissue!
Anonymous   |     |   Comment #22
I agree with you. I do the same. Most people in line don't even know that the cashier is doing 2-3 swipes for you. It takes a lot longer for the cashier to process coupons than to perform 2 swipes on the card.