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Bank rates dropped to record lows in 2020. That’s hard to believe after we spent seven years from 2008 to 2015 with the Fed holding rates near zero. Even during those seven years, online banks didn’t lower the rates of their online savings accounts and CDs to the levels we see today. Most online savings accounts now have rates of 0.50% or under, and no major online bank is offering CD rates over 1%.
It looks unlikely that we’ll see any significant improvement to deposit rates in 2021. Even if the economy has a strong recovery in 2021, the Fed will almost certainly keep its benchmark rate near zero through 2021. The most we can expect if the economy does have a strong recovery is the Fed signaling that it plans to pull back on its asset purchases. That may put some upward pressure on long-term rates and that may lead to some gains in long-term CD rates as it did in 2014.
What’s the best bank account option in 2021? As I explained in this June blog post, the only option for 1%+ liquid bank accounts is high-yield reward checking. These checking accounts offer a high rate (1% to 5%) on balances up to a certain cap ($5k to $150k) 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.
Most reward checking accounts have fairly small balance caps ($25k and under). However, there are a few with larger caps. The tradeoff is a lower rate. In the past when it was easy to find online savings accounts with rates over 1%, these high-cap reward checking accounts weren’t that appealing. In today’s world, you may want to give these high-cap reward checking accounts another look.
In addition to the high-cap reward checking, a couple of credit unions offer a high-yield money market or savings account in addition to a reward checking account. Maintaining both accounts can offer a good alternative to online savings accounts.
One important issue with any liquid bank account is that the rate is variable. In general, reward checking rates have fallen less than online savings account rates, but their rates are not immune to the rate environment.
I put together a small list of three institutions that offer nationally-available reward checking accounts and savings/money market accounts that when combined can compete well against online savings accounts. In addition, these three have long histories of maintaining top rates during at least part of the 2008-2015 zero rate years. Of course, there’s no guarantee they will be able to continue in this new zero rate environment.
Axos Bank Rewards Checking
Axos Bank’s Rewards Checking has a long history of maintaining 1.25% APY, and its balance cap far exceeds the caps of other reward checking accounts.
Axos Bank is one of the oldest existing online banks: it was established over 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 account rates have fallen way below 1.00%, 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 more than $12 billion in assets and more than 1,000 employees.
Connexus Credit Union Xtraordinary Checking and Money Market
Connexus Credit Union has been offering reward checking accounts since 2007. Its current reward checking account is called Xtraordinary Checking. Its top rate has been a little low compared to other reward checking accounts, but the rate has remained unchanged since 2012.
Xtraordinary Checking currently has a top rate of 1.75% APY on qualifying balances up to $25k. The rate falls to 0.25% on the portion of qualifying balances over $25k. No interest is earned if monthly requirements are not met. The monthly requirements are fairly simple. In addition to having e-statements, you have to either make 15 debit card purchases or $400 in debit card spending. There are no maintenance fees regardless of meeting the debit card usage requirements.
Connexus Credit Union also has a competitive money market account. It’s a tiered account with a top rate of 1.15% APY for balances of at least $100k. For smaller balances, the rates range from 0.50% ($1k) to 1.00% ($50k). These rates require an active checking account. Without an active checking account, the top rate is only 0.50% for $100k.
If you want the top money market rate, it makes sense to also have the Xtraordinary Checking account. However, it will take more than meeting the monthly Xtraordinary Checking requirements to satisfy the money market’s “active checking” requirement. The account disclosure defines active checking as follows:
Must have at least 1 Direct Deposit of net pay, including salary, wages, government benefits or pension made to the account each month; having 10 checks, ACH withdrawals, and/or debit card transactions clear the account by the last business day of each month; and electing to receive eStatements. ATM transactions not included.
If you want to earn the top rate of both the Xtraordinary Checking and the Money Market, you’ll need to satisfy the Xtraordinary debit card usage requirements and have at least one direct deposit.
Membership in Connexus Credit Union is open to people in any state by becoming a member of the Connexus Association with a $5 donation.
Connexus is a large credit union with over $3 billion in assets.
Lake Michigan Credit Union Max Checking and Max Savings
|3.00%||$1||$15k||Lake Michigan Credit Union||Max Checking|
|0.80*%||$250k||-||Lake Michigan Credit Union||Max Savings|
|OTHER TIERS: 0.25% → $100 - $100k | 0.60% → $100k - $250k|
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 more than nine years.
There is no monthly service fee. The monthly requirements to qualify for the top rate include:
- At least 10 debit card or credit 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.
LMCU also has a competitive savings account called Max Savings. The rates are only competitive for large balances. The top two rate tiers are 0.80% APY for $250k+ and 0.60% APY for $100k+. The rates are much lower for smaller balances (currently 0.25% for $100 to under $100k).
Even though Max Savings has a similar name to the Max Checking, Max Savings can be opened and the top rates can be earned without having the Max Checking or any checking account.
Max Savings doesn’t have a long history of top rates, but it did maintain a top rate of 2% APY from November 2018 through April 2020.
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 20th largest credit union in the nation with $8.7 billion in assets, LMCU is one of the largest credit unions that offers a reward checking account.
Other Reward Checking Accounts for Large Balances
More banks and credit unions are pairing savings accounts with their reward checking accounts. If you have savings that exceeds the reward checking balance cap, you can keep more of your savings in the institution’s savings account. If you meet the monthly requirements of the reward checking account, both the checking and the savings account will earn a high yield. The most popular version of these checking/savings combos is the Kasasa Cash and Kasasa Saver accounts. Most Saver accounts have lower rates than the Cash accounts. However, several have rates higher than most online savings account rates. Also, all Saver accounts have balance caps just like reward checking accounts. However, several have large caps of $100k and above.
In future posts, I plan to list the best Kasasa Cash/Saver accounts for large balances. You can find these using our Reward Checking Account table. Many of the institutions offering Kasasa Cash accounts also offer Kasasa Saver accounts.