As online banks and credit unions lower their savings account and CD rates, finding a yield in a bank account of at least 2% is a challenge. That’s even the case if you’re willing to lock into a long-term CD. You may be able to find some local CD deals with 2% yields, but only a few lucky savers who live in the right areas will qualify.
If you don’t want to lock into a long-term CD, rates are even lower. Most online savings account rates are now hovering around 1.00%.
Unfortunately, I’m seeing no signs that falling deposit rates will end soon. Other conservative places for cash are paying even less. Brokered CD rates, Treasury yields and money market fund yields are now below 1.00%.
If you want a bank account with a yield of at least 2%, the only place to find yields this high is the high-yield reward checking account. These checking accounts offer a high rate (1% to 5%) on balances up to a certain cap ($5k to $50k) if monthly activity requirements are met (5 to 20 debit card purchases per month, plus a few others).
For savers with large cash holdings in CDs and savings accounts, they probably won’t be able to completely replace their CDs and savings accounts with reward checking accounts. However, reward checking can at least be used to supplement your savings accounts and CDs which can provide a boost to your overall interest income during this new period of zero rates.
How Reward Checking Can Offer Higher Rates
Banks and credit unions are able to offer higher rates on reward checking accounts due to two account features:
First, the balance tiers and monthly requirements limit the overall average interest rate that the bank pays out. From a bank’s perspective, it’s the average interest rate paid on the bank’s total deposits that matters. The reward checking balance cap limits the amount of high-yield deposits. The monthly requirements will result in a certain percentage of reward checking customers not qualifying for the high rate. Consequently, the average interest rate paid by the bank is reduced.
The second account feature that allows higher rates on reward checking is the debit card usage requirements. When you make a purchase with a debit card, the merchant pays an interchange fee of 1% to 3% of the amount of the purchase. Part of that interchange fee is paid to the bank. So if the bank receives 1% on every debit card purchase, a $100 purchase that you make with your debit card results in the bank earning $1 from the interchange fee. If the average customer makes $1,000 of debit card purchases a month, the bank may earn $10 a month of fees from those purchases. Those fees can be used by the bank to help pay for the high interest rate.
More debit card usage also increases the chance of overdrafts and overdraft fees. That’s another fee that can help pay for the high interest rate.
Banks may attribute other features like e-statements that help the bank afford to pay the high rates, but these features that reduce cost are unlikely to give banks an edge over online-only banks. Brick-and-mortar banks and credit unions will always have more overhead costs than online-only banks. Thus, the account features described above are the important ones that allow the bank to maintain a higher reward checking rate than online savings account rates.
The value of these features in allowing the bank to pay a higher rate will vary based on the ratio of “dedicated savers” to “average savers”. An average saver will maintain a balance that’s much lower than the cap, will sometimes miss the monthly requirements, will occasionally be hit with overdraft fees and will make debit card purchases that total many hundreds of dollars during the month. A dedicated saver will keep a balance close to the cap, will never miss monthly requirements, will never have an overdraft fee and will make debit card purchases that total less than $100 per month (they’ll use a cash back credit card for most of their purchases). The higher the ratio of “dedicated savers” to “average savers”, the higher the overall average rate the bank pays out, and that will lower the profitability of the account and force the bank to lower the rate, lower the cap, limit accounts to only one per customer, and/or increase the monthly requirements.
Banks may also try to lower the “dedicated saver/average saver” ratio by limiting accounts to their local market areas. We have seen many cases when a bank will launch a reward checking account that’s available nationwide or in multiple states and then restrict it to only their state or local metro area. dedicated savers are more likely than average savers to open a reward checking account online at an out-of-state institution. Also, dedicated savers are more likely to open multiple reward checking accounts to maximize their interest earnings.
If more dedicated savers start moving to reward checking, that will result in some banks making cuts to their rates and caps. Some banks may lower rates so that the reward checking accounts are no longer an alternative to online savings accounts. Other banks may decide to end their accounts or stop accepting new accounts.
Even though not all reward checking accounts may survive, history over the last 14 years has shown that many have survived with rates and balance caps that make them a reasonable alternative or supplement to online savings accounts.
Reward Checking Accounts with a Long History of High Rates
I’ve come up with a list of nationally-available reward checking accounts that have been offering 2%+ rates on balances of at least $15k for many years, including at least part of the 2008-2015 zero rate years. The credit unions and banks offering these accounts have a proven track record of being able to maintain the high rates even during the zero rate years. Of course, there’s no guarantee they will be able to continue in this new zero rate environment.
Lake Michigan Credit Union Max Checking
Lake Michigan Credit Union (LMCU) has been offering a reward checking account that it calls Max Checking since 2007. From 2007 to 2011, the rate fell from 5.00% to 3.00% APY on balances up to $15k. Since 2011, both the 3.00% APY and the $15k balance cap have held steady for an amazing run of almost nine years.
There is no monthly service fee. The monthly requirements to qualify for the top rate include:
- At least 10 debit card purchases per month.
- Direct deposit into any LMCU account.
- Minimum 4 logins to home banking each month.
- Sign up to receive eStatement and eNotices.
People in any state can join LMCU. A donation ($5 minimum) to the Amyotrophic Lateral Sclerosis (ALS) Association, West Michigan Chapter, qualifies for LMCU membership eligibility. The donation process is included in LMCU’s online application.
As the 23rd largest credit union in the nation with $6.86 billion in assets, LMCU is one of the largest credit unions that offers a reward checking account.
Evansville Teachers Federal Credit Union Vertical Checking
Evansville Teachers Federal Credit Union (ETFCU) added the Vertical Checking account to its product line in late 2014, earning 3.00% APY on qualifying balances up to $15k. In July 2019, the rate was increased to 3.30% APY, and the balance cap was raised to $20k.
There is no monthly service fee. The monthly requirements to qualify for the top rate include:
- Have at least 15 debit card purchases.
- Have at least one Direct Deposit.
- Have at least one Online or Mobile Banking login.
- Be enrolled and receive eStatements.
ETFCU’s name would suggest that only teachers in the Indiana city of Evansville are eligible to join. In fact, ETFCU’s field of membership provides a way to join for virtually anyone in the country. The third option on the first page of the online application reads,
I am not eligible through my employer, an organization, or a member of my family or household. I am willing to donate $5 to the Mater Dei Friends & Alumni Association in order to become eligible for membership.
One might also think that ETFCU would be a small credit union. That’s not the case. It has assets of $1.85 billion and almost 600 employees.
Signature Federal Credit Union High-Yield Checking
Signature Federal Credit Union (Signature FCU) High-Yield Checking account (formerly called Choice Checking) has been earning 3.00% APY on qualifying balances since it was introduced in April 2015, but the balance cap has increased from $15k to $20k.
There is no minimum balance requirement. The monthly requirements to qualify for the top rate include:
- At least 10 debit card purchases each month
- Direct Deposit(s) totaling at least $1k each month
- Enroll and receive e-statements
Headquartered in Alexandria, Virginia, Signature FCU’s field of membership provides a way to join for people in any state. The fifth option on the online application reads,
Still need another way to join? By selecting this option Signature FCU will enroll you into American Consumer Council (ACC), at no cost to you, therefore making you eligible for membership.
Signature FCU isn’t a large credit union with assets of $319 million and 55 employees.
Market USA Federal Credit Union VIP Checking
Market USA Federal Credit Union (Market USA) has been offering a reward checking account since 2009. It’s called VIP Checking, and when I first posted on it in 2009, the yield was 4.00% on balances up to $50k. In early 2011, it became a two-tier account with the second tier offering a higher rate when at least three bill payments per month were done. In late 2011, the top yield fell to 2.00%, and in 2013, the balance cap fell from $50k to $15k. The yield held until August 2017 when it increased to 3.00% APY.
There are no monthly maintenance fees. The monthly requirements to qualify for the top rate of the Platinum Tier include:
- At least 12 debit card purchases (minimum $5)
- At least $250 in direct deposits
- At least three bill payments
- Be enrolled in eStatements
The Gold Tier has a lower rate but does not require the three bill payments.
Headquartered in Laurel, Maryland, Market USA’s field of membership provides a way for people in any state to join. The fifth eligibility option listed in the online application reads,
Join Through the Market USA Cares Foundation
When you select this option, another checkbox appears:
My initial deposit will be at least $10; $5 of which will be a foundation (charity) donation.
Market USA is also not a large credit union with only $114 million in assets and 43 employees.
Main Street Bank Free Kasasa Cash/Saver
Michigan-based Main Street Bank ’s Free Kasasa Cash account was added to the product line in 2015, with an initial 2.25% APY on qualifying balances up to $25k. This increased to 3.00% APY on qualifying balances up to $30k in February 2019. The Bank quickly responded to this new zero rate environment when in mid-March, it lowered the rate to 2.00% APY and reduced the balance cap from $30k to $15k.
Even though the balance cap is now only $15k, there is an additional option for those with larger balances. The Bank offers a companion account called Kasasa Saver. The Kasasa Saver account linked to the Kasasa Cash earns 1.75% APY on qualifying balances up to $100k.
There are no monthly maintenance fees. The monthly requirements to qualify for the top rates of the Free Kasasa Cash and the optional Kasasa Saver account include:
- At least 10 debit card purchases
- At least 1 direct deposit, ACH payment, or bill pay transaction
- Be enrolled in and log into online banking
- Be enrolled in and agree to receive eStatements
Headquartered in Bingham Farms, Michigan, Main Street Bank offers its services and product through its online application to any U.S. Citizen, 18-years or older.
Main Street Bank is a small bank with $277 million in assets and 95 employees.
Axos Bank Rewards Checking
Axos Bank’s Rewards Checking has never had a 2% APY, but it has a long history of maintaining 1.25% APY, and its balance cap far exceeds the caps of other reward checking accounts. For these reasons, I thought it made sense to include this account in this post.
Axos Bank is also different from the other institutions mentioned in this post. Unlike the other institutions, Axos Bank has always been an online-only bank, and it’s one of the oldest existing online banks: it was established 20 years ago on July 4, 2000 as Bank of Internet USA. In 2011, the official bank name changed to Bofi Federal Bank, but the Bank of Internet USA brand continued. Then in 2018, the name changed to Axos Bank.
The Rewards Checking account was first launched in July 2011, and the top rate has remained the same at 1.25% APY. Maintaining this rate during the last zero rate environment was an accomplishment, and it’s a hopeful sign that Axos Bank may be able to maintain this 1.25% APY in this new zero rate environment. During the period of rising rates in 2017 and 2018, Axos Bank still maintained the 1.25% APY. Online savings accounts at other banks became much more attractive as their yields increased to over 2.00%. However, now that online savings accounts appear to be headed to 1.00% and under, this Rewards Checking with a 1.25% APY is once again a good alternative to online savings accounts.
Even though the rate has held since 2011, the balance cap has not. The Rewards Checking was launched in 2011 without a balance cap. All balances could qualify for the 1.25% APY. That changed in early 2013 when a $150k balance cap was added. Only balances up to $150k can now qualify for the 1.25% APY. According to the account disclosure, “All daily collected balances greater than $150,000 will not earn interest.”
Most reward checking accounts are all or nothing when it comes to the rate. If you don’t meet all of the monthly requirements, you only earn the tiny base rate. For the Axos Bank Rewards Checking, you can qualify for one third, two thirds or all of the 1.25% APY. Meeting each of the three requirements adds 0.4166% to the rate. These three tiers and their monthly requirements are as follows:
- Receive monthly direct deposits totaling $1,000 or more: 0.4166%
- Use the Axos Visa® Debit Card for a total of 10 purchases per month (min $3 per transaction): 0.4166%
- Use the Axos Visa® Debit Card 5 more times, a total of 15 purchases per month (min $3 per transaction): 0.4166%
If all three of the above requirements are met during the month, the customer will qualify for the full 1.25% APY. The account has no maintenance fees.
Axos Bank has grown to become a sizable bank with $11.55 billion in assets and more than 1,000 employees.
Reward Checking Accounts That Are Not Nationally Available
A reward checking account will have a better chance of sustaining a high rate and balance cap if there are eligibility limitations. Banks and credit unions that limit applications to their local areas or credit unions that limit membership to certain employee groups will probably attract a higher percentage of average savers than dedicated savers. As I mentioned above, dedicated savers are more likely than average savers to open a reward checking account online at an out-of-state institution.
Here are two reward checking accounts with a long track record of top rates that are not nationally available.
Southwest Airlines Federal Credit Union LUV Reward Checking
This reward checking account from Southwest Airlines Federal Credit Union has an amazing history. For more than ten years, the LUV Reward Checking account has offered 4.00% APY on qualified balances up to $25k. DA started tracking the LUV Reward Checking account in January 2010, and I did my first review of this account in June 2010. The Credit Union was able to maintain both the 4.00% APY and $25k balance cap all through the first zero rate period. The only rate that did fall was the rate that applies to the portion of the balance above $25k. In 2010, this rate was 1.00%. It’s now 0.25%.
There is no monthly service charge. The monthly requirements to qualify for the top rate include:
- At least a combined total of 15 debit card purchases or credit card purchases with a minimum transaction amount of $5
- At least 1 direct deposit or ACH payment transaction
- Be enrolled in and agree to receive e-Statements
Note, members have the option to use a credit card instead of a debit card to meet the monthly requirements. SWA FCU’s Basic Platinum Credit Card can be used instead of the debit card which should appeal to those who view credit cards as more secure than debit cards.
Headquartered in Dallas, Texas, SWA FCU’s field of membership is primarily employer based. According to the SWA FCU’s membership eligibility page, they “have over 150 Select Employee Groups”, which of course includes Southwest Airlines. And like most any credit union, you can also be eligible to join if you have an immediate family member who is a SWA FCU member.
For the last ten years, I’ve been hoping SWA FCU would expand its membership, but it appears content on maintaining its limited membership. That has probably prevented the credit union from growing large as it remains a sub-billion-dollar credit union. It has total assets of $589 million and just over 100 employees.
Iowa State Bank Kasasa Cash
Iowa State Bank Kasasa Cash account has maintained a 3.25% APY since June 2014. There have been a few changes since that time. When Iowa State Bank first launched the account, it was available nationwide. That changed in early 2015 when the Bank limited new applications to their local area. Another change happened in 2015 that improved the account. In July 2015, the balance cap was increased from $10k to $25k. Since that time the account has earned 3.25% APY on qualified balances up to $25k.
Just like all Kasasa Cash accounts, it’s a free account with no monthly service fee. The monthly requirements to qualify for the top rate include:
- Have at least 10 debit card purchases
- Have at least 1 direct deposit, or Automatic Payment
- Be enrolled and agree to receive eStatements
There’s also a companion Kasasa Saver account that has a history as long as the Kasasa Cash account. Unfortunately, both the rate and balance cap have been disappointing.
Headquartered in Hull, Iowa, Iowa State Bank no longer includes an online application for its Kasasa products, and in fact, there is little information about account opening on their website. According to a CSR, a branch visit is now required to open a Kasasa account, and new customers must be Iowa residents and live within an hour drive from one of their branches in Northwest Iowa.
Iowa State Bank is a small bank with $646 million in assets and 85 employees.
Finding a Reward Checking Account
As I mentioned at the start, a high-yield reward checking account will probably not be able to replace your CDs and online savings accounts. The balance caps of reward checking accounts make it difficult for those with large cash savings. It may be possible if you’re willing to maintain multiple reward checking accounts, but the debit card usage requirements make that difficult.
Nevertheless, reward checking can at least boost your interest income from your cash savings. As shown above, there are many examples of reward checking accounts with rates that have exceeded online savings account rates for many years. There’s no guarantee that these rates will last in this new zero rate environment, but the long history of many of these accounts is encouraging.
DA currently has over 1,100 accounts listed in the high-yield reward checking account table. By default, the table will show all accounts that are both nationally available and those offered by institutions with branches in your metro area. To view only those with branches in your area, uncheck the “web only” box. To view all credit unions, including those with employer-based membership (like SWA FCU), click the “Advanced options” link on the right side of the filter box and then click “Select All”. You may also need to select “Any” in the “Modify or Expand Region” option that’s above the filter box. This will include credit unions that don’t have branches in your area.
Post Publication Edits
7/1/2020: Replaced "serious" with "dedicated" for the saver descriptions.