As Rates Fall, the Appeal of High-Yield Reward Checking Grows

After yesterday’s Fed rate cut (the third since July), I’m afraid savers should expect more rate cuts on their online savings accounts. As those rates fall, high-yield reward checking accounts are looking more attractive as an alternative for your liquid funds. There are still options to earn 2.40% on savings accounts, but as those rates fall, the 3%+ rates currently available on reward checking accounts will become more appealing.

Below is a table of reward checking accounts that currently earn at least 3.00% APY on balances of at least $25k. All are currently nationally available. For a full list of high-yield reward checking accounts including Kasasa Cash Accounts, please refer to our reward checking table.

As of 10/31/2019, TAB Bank offers the highest rate. Its Kasasa Cash Account earns 4.00% APY for balances up to $50k when monthly qualifications are met. The rate and balance cap have held up since we began tracking this account in April of this year.

For savers looking to maximize interest, there’s more to consider than just the rate of a reward checking account. You have to make sure the monthly activity requirements to qualify for the high rate are not too difficult. Also, you have to make sure the balance that qualifies for the top rate (the cap) is high enough to be worth your time. A reward checking account with a 4% APY may not be worthwhile if the cap is only $5k. Such a cap will limit your annual interest to about $200. On the other hand, a 4% APY may be worthwhile if the cap is $50k. That increases your annual earnings to at least $2,000.

Another thing to consider with reward checking is that both the rates and the caps can fall. We’ve seen this since I began reporting on reward checking in 2006. In 2007 I reported on reward checking accounts with yields over 6% without balance caps. As rates started to fall, banks lowered reward checking rates and introduced balance caps. For example, First Arkansas Bank and Trust offered a reward checking account in 2007 with a 6.06% APY on all balances. In 2008, the yield fell to 4.44% and a balance cap was introduced that limited the 4.44% to balances of up to $50k. Both the yield and the cap continued to fall as interest rates fell. In 2009, the bank stopped accepting out-of-state applications.

Even though reward checking rates and caps should be expected to fall when interest rates fall, reward checking accounts have shown the ability to offer higher rates than online savings accounts over the long run. For example, in October 2014 when the federal funds rate was still near zero, the top reward checking yield for balances up to at least $25k was 1.76% (at ABCO FCU). The top yield on an online savings account was 1.25% (at UFB Direct). This required a $25k minimum balance. The top yield on a no-minimum online savings account was 1.05% (at MySavingsDirect). Ally Bank’s Online Savings account had a 0.90% APY at that time.

Are you using a reward checking account as an alternative to online savings accounts? How long have you had reward checking accounts? And what rates and balance caps do you require?