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Potential Issues When You're Opening Reward Checking Accounts

With deposit rates being so low, many readers have reported opening multiple reward checking accounts at different banks. I've received several emails from readers describing issues they've experienced. In many cases they lost a month or more of interest because of reward checking gotchas. So I thought it would be useful to list some of these potential gotchas. If you've experienced these or other gotchas, please leave a comment.
  • Most banks waive the first month requirements to give you time to receive your debit card. However, not all banks have this policy. Make sure you check with the bank on this issue.
  • Some banks require that you log into their online system to meet the monthly requirements. Not all make this clear.
  • Many banks allow both PIN and non-PIN (signature or credit based) debit card purchases to qualify as part of the debit card usage requirements. However, many require signature-based only. Also, the vast majority don't count ATM transactions.
  • Most banks accept an ACH credit or debit to meet the direct deposit requirement. If the bank's documentation only states direct deposit, make sure to check with the bank if you're going to use ACH instead.
  • If you're opening many new accounts, some banks may reject your application due to too many ChexSystem inquiries within a period of time. For example, I've been told that First Arkansas Bank & Trust will reject new applicants who have more than 4 ChexSystem inquiries in the last 6 months. If you've been rejected, you can get your ChexSystem report for free (see this MyMoneyBlog post).
One way to reduce the chance of problems is to fund the account with the minimum initial deposit. If it takes a long time to receive the debit card or to log into your account, you won't have to worry about losing much interest. Most reward checking accounts only require $100 or less for the initial deposit.

To find a reward checking account or to learn more about these accounts, please refer to my High Yield Checking website.

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Anonymous   |     |   Comment #1
This website below also might be useful to find your local and nationwide Reward Checking Account.

I have three Reward checking accounts and my husband has one. He opened one because I was rejected.

We have now $25K in each account and make automatic online payment to most used Creditcard ($5*4 bank account), get eStatement, automatic ACH transfer in&out from other banks and most importantly, use ATM card mostly at gas station.

To avoid the risk of getting "Invalid use" sign from the machine and maximize the interest every month, I use them twice the four different cards everytime I get gas. I only buy about $1.00 of gas on each transaction (so I buy $8.00 of gas, six times a month, total of $48.00).
I used to use ATM at grocery stores but realized that I ended up spending more money for the sake of getting requirement fulfilled.

I am wondering how other people pass their 12 required transactions...
Anonymous   |     |   Comment #2
Sorry, I forgot to past web address.
Here you are...
Anonymous   |     |   Comment #3
My record low was buying 12 "bricks" of Raman noodles for 12 cents apiece, in 12 transactons when I happened to be at the grocery early one morning, thus satisfying the monthly requirememnts for 1 of my accounts. I don't go quite that low anymore.
Anonymous   |     |   Comment #4
And really, it's those examples listed above that is at least partly responsible for the Congressional legislation being pushed through that would do away with merchant fees and do away with our rewards checking accounts altogether.
Anonymous   |     |   Comment #5
The priginal purpose for reward checking is for regional banks to attract more customers that will bring more "profit" to those banks. The requirement of multiple debit card usage is in direct conflict with credit card usage with 2% - 5% cash rebates. Thus a prudent reward checking customer will try her/his best to minimize the dollar amount per debit card usage, while sitll keeping rate/offer steady (say at $3/transaction).

The problem is that most RCA customers are abusing the system by spending $.10 per transaction, thus causing huge rate drop/limit reduction/offer closure.

I would pick banks like FAB&T that set some regulations on debit amount (say $5-$10), whihc keep the rate steady over the long term.

As for traps, watch out for those closing dates like a hawk and meet requirements as early as possible. Many banks have large delays, especially for non-PIN transactions (up to two weeks).
Anonymous   |     |   Comment #6
There is one non-obvious trap that might catch some at the credit union I use. One of the four requirements to receive the higher interest rate is one direct deposit or ACH per month. Bear with me . . .

The 'month' for the purposes of determining whether or not you receive the higher interest rate is the last day of the month to the second to the last day of the next month. So the 'month' of November 2009 runs from October 31, 2009 to November 29, 2009.

We get paid once a month, on the last WEEKDAY of the month. So in October, I get a direct deposit to my account on Friday, October 30, 2009 (the 31st is a Saturday) and in November I get a direct deposit on Monday, November 30th, 2009, the last day of the month.

So in this case, my October paycheck counts for the 'month' of October and my November paycheck counts for the 'month' of December. No 'month' of November direct deposit.

I have my mortgage taken out on the 2nd of every month and I have several ACHs to various funds, so it doesn't catch me. However, this strange definition of month could possibly catch some people.
Anonymous   |     |   Comment #7
P.S. - My wife gets paid every two weeks so even if they drop the 'ACH' from the 'direct deposit or ACH' we'll still be fine.

This credit union originally served the University of Oregon, but has since opened up abit. When I was initially reading the fine print, I did wonder how many university employees that get paid once a month get tripped up by this.

Details are here if you want to use it as an example or check it out for yourself.
Anonymous   |     |   Comment #8
So you think using debit to pay $.50 to $1.00 could be a violation? But there's no writing regarding the amount we have to use in the fine print.
Anonymous   |     |   Comment #9
They didn't comment, but I realized that I was being mean to my excellent local small grocery store. They are the ones who wind up paying for a lot of this because debit card transactions cost them a fixed fee per transaction plus a percentage of the amount.

And I compared the extra interest earned vs. my time and hassle doing debit card transactions and tracking them.

Then factored in the risk of errors or ID theft with debit card transactions. An error can instantly clobber your $25,000 account -- and be hard to correct.

Decided that it wasn't worth it and split the money to a good savings account and a CD.

When the bank interchange laws change, the loophole that the banks are using for these accounts will get closed.
Anonymous   |     |   Comment #10
Above Post: It is not the point whether using small transactions is a violation or not. But some banks (more than one) do demand regular daily usage (as one's main checking) to keep their profit up. For those banks, the rate is steady and the offer is more long-lasting. Other (and most) banks do not require such a dollar minimum, they simply lower rate drastically, closing accounts, or simply terminate RCA offers.

What is the customer strategy? They should find those banks with steady rate and are willing to reward banks with a higher debit transactions.

Look, even at ten $10 transactions, you are losing only $2 a month vs. the 2% rebate credit card. The earned interest with a high-rate RCA very much make up for such a usage. Take a longer perspective with this:-)
Anonymous   |     |   Comment #11
Chexsystems exists for the primary purpose of determining whether an individual has so called "negative events" in their banking history.
Passing bad checks, overdrawing an account or being delinquent are all valid cause for concern.

Since when is the mere & innocent act of opening a valid account, considered an "adverse event"?
Not only should banking institutions not be discriminating against consumers in this way, but Chexsystems has absolutely no business even monitoring or reporting this benign and irrelevant activity.

Virginia   |     |   Comment #12
I use my debit card lightly throughout the month for things like $5 lunches, $2 coffees, $8 prescriptions, etc. I check my balance every week or so to keep track of my transaction count. I sometimes end up doing 1 or 2 more than the required 10, which is ok by me - I'd rather be safe than miss out on the interest. I figure that this pattern of usage is ****ing neither the vendors nor the bank and hopefully will help me avoid getting flagged as an account abuser. I typically make more in interest than I spend, so my balance doesn't decline from month to month.
Len   |     |   Comment #13
A typical merchant pays 20c per transaction plus perhaps 1.5-2.0% of the transaction amount, to accept a credit card. I think for a POS transaction it is only the flat fee, say 25c.

I know some banks have closed rewards checkings that had a pattern of making many small charges only to satisfy the requirement.

I have accounts that allow POS or Debit Card use, so to help the merchants I use POS whenever possible. Also, to mask the fact that my purchase amount is small, I typically take $20 of cash back on many transactions, say those less than $5. That way, to the bank it appears you are using the card more normally for larger purchases.

The merchants get burned on this. A $1.00 charge might cost the merchant 22c or 22% of his revenue. There are merchants, especially restaurants, who will say no credit/debit card use under $10.

I have 3 rewards accounts and am thinking of opening a 4th as an overflow account.
Anonymous   |     |   Comment #14
Credit Card w. 2% back: 10 purchases @ $20 = $4/month.
Checking 50K 4% vs. 1.5% = $104/month. And yet people are worried about that missing $4.
Anonymous   |     |   Comment #15
The reward checking account that is handy for me is 3.51%. I tried it for a month.

Switched half the money to a 2% savings account. The other half of the $25K went to a 3.6% CD.

For me the difference is $15 per month for keeping track and remembering to do 12 ATM transactions per month = i.e. $1.23 each.

However, if you buy lunch every day, then it is convenient and easy to do a genuine ATM transaction every day. You could easily keep two reward checking accounts going.

The banks will slowly reduce the interest rate once they have captured the desired number of new accounts, and as more customers play games with minimal transactions.

This loophole will get closed - due to the campaign from merchants to reduce the fees they pay to banks and credit card companies.
Cyclone   |     |   Comment #16
Most every morning I stop by Dunkin' Donuts to get a cup of coffee and a bagel sandwich. I just put those purchases on my RCA debit card and continue using my Cash Back Credit Cards for everything else. I go about 3 times a week (at least) and have a 10 use requirement for my RCA. Makes it easier on me to remember and keep track of, and if I see anything other charges on there, it's very easy for me to flag them as fraudulent (which hasn't happened). BTW, that charge is $4.90
Anonymous   |     |   Comment #17
RCAs are designed for a "typical" customer who has a high balance every month of $6K and a low balance of $3K. At 4% APY, the interest owed every month on the $4500 average balance is $15.

Of the $3K spent every month, $1K can be spent using a debit card generating $15 in interchange fees.

That's how it all balances out---the bank hopes you will use your debit card to spend 10-20% of your average balance.every month.
Anonymous   |     |   Comment #18
Before I had RCA accounts, I used to typically pay cash for most smaller routine things like groceries thru the week, paying with money withdrawn from the bank ATM.

Then when I first got my RCA, I satisfied the requirements by purchasing one or two albums of online music per month -- one song at a time... The RCA account I had had no minimum purchase amount.

But then as time passed, and I had an unrelated change in my lifestyle, I started not spending ATM cash thru the week, and instead just using my debit card for all the things I'd normally pay for anyway... meals out, groceries, shopping, gas, etc etc..

And now... other than keeping track to make sure I satisfy the requirements every month... I just live my life as normal and don't worry about it too much. My normal routine purchasing habits -- by using the debit cards instead of cash -- easily meet the requirements.
Anonymous   |     |   Comment #19
I do have two RCA and $25K balance in each. I think I spend about $20 for 12 debit transactions and a $10 online payment, still getting some interest back to my account, which I transfer out to other bank account monthly.

I do not have to set up direct deposit so far.
I use ATM cards at supermarket self-register when the store is not too crowded, of course, I can do this only because I have time.

I think I use RCA wisely and fulfill requirement. I am not sure if I want to open another RCA because many new RCA seem to require direct deposit and unfortunately I don't have a job right now.
Anonymous   |     |   Comment #20
1. If one does not earn cash rebate from credit cards (like the above poster), then there are no issues of meeting debit card transactions. Most folks are sacrificing cc rebates for RCA debit card usage.

2. Direct deposit is usually easily met with external ACHs from other banks; doing one ACH transfer will meet requirements for both banks (credit/debit). I ran into only one local credit union which demands real payroll direct deposit (with a minimum of $100). I ditched that one due to its lower rate recently.
Anonymous   |     |   Comment #21
anonymous (oct 19) thank you for all your helpful and funny postings. You have really motivated me on the road to opening a high interest checking acct and getting disentangled from my (awful) wamu (now chase) money gouging accts.
I'm moving to bank of sierra - wow - at 4.51%, what's not to like?

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