“Rewards Checking” Accounts: a Marketing Gimmick Worth a Second Look

“Rewards Checking” accounts are an attractive option for anyone seeking a better return on their liquid funds who doesn't mind using their debit card several times a month.
 
Starting in 2007, the housing decline, credit crunch, and attendant recession worries led Ben Bernake's Federal Reserve board to reduce short-term interest rates. Since then, savers everywhere have been frustrated by the very low rates they are offered for checking, savings, money market, and CD accounts. A new product commonly referred to as “Rewards Checking” accounts offer many of these savers an interesting solution to this problem. While pitched to banks as a marketing tactic which would increase customer loyalty, it gives customers willing to play along a great way to earn much higher interest than they otherwise might.
 
Rewards checking accounts all share two key traits:
 

• Above-market interest is awarded in return for meeting certain guidelines each month—most importantly, ten or more purchases with the account's debit card.
• Even if the guidelines are not met, the account acts as a free checking account.

This combination is what makes these accounts so attractive. If you meet the guidelines, you get an essentially unbeatable rate of interest on a completely liquid account. And if you don't, you still get a FREE checking account, with no minimum balance required. So you're left no worse off than if you had parked your money at other accounts.
 
Particulars on these accounts will vary. Hundreds of institutions have launched variations on the “Rewards Checking” theme since product developer BancVue developed the idea in late 20071. Differences include the following:
 

• Eligibility for the accounts (generally a function of who can join the institution).
• Number of accounts per person (generally one per person, sometimes more).
• Number of debit card purchases needed to earn the rate (between ten and fifteen per month).
• Type and size of transactions (generally signature, “credit” purchases, though some accept pin-based “debit” purchases as well. Some want transactions of $1 or more, others accept any amount as qualifying).
• Other requirements (generally, receiving e-statements, a direct deposit or debit, and logging on to online banking).
• Caps on balances eligible for the above-market rates (from $10,000 to unlimited).
• Method of measuring these balances. Some award interest only up the maximum level per day, while others use a much more flexible “average daily balance”. Depending on your banking habits, this difference may be significant, and it's a factor other articles on Rewards Checking neglect to consider.
• Other benefits for meeting requirements (typically, reimbursements of ATM fees).

 
As of this writing, the single best source of information concerning these accounts is http://www.highyieldcheckingdeals.com/ . Site owner Ken does an excellent job of tracking the evolution of these accounts, drawing on the research of his large reader base to help keep them current.
 
Here is some practical advice for you readers who might be interested in perusing these accounts:
 

1. The sooner you find a good fit and act, the better. The more attractive options have proven very popular. As a result, restrictions are often placed on them to keep them from being oversubscribed, or attracting too many customers who might prove unprofitable.2 Best to open an attractive account now, before terms become less favorable.
2. Don't hesitate to try a couple of the best options. Since these products are free and require no minimum balance, there's no reason not to open a handful of them and see which ones best suite your needs. This is all the more prudent given the advantages quick action as just described.
3. Be mindful of Chexsystems. I'll discuss Chexsystems in more detail in an upcoming article. For the time being, note that opening more than a few checking accounts in a short period might cause additional applications to be rejected due to an excessive number of checking inquries in the Chexsystems database.

 
I have several rewards checking accounts. Once I got used to making several small debit purchases per month per account (incidentals, snacks, online donations, and small utility payments and online purchases), I found them extremely easy to take advantage of. And if your balances are sizable, each account could easily earn $50-$100 or more a month in interest over what other alternatives currently provide.

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1. BancVue's site offers some interesting marketing materials on Rewards Checking accounts. See http://www.bancvue.com/challenge.htm for the rationale given to banks and credit unions for why they ought to give this concept a try. Remarks by BankVue's CEO at http://www.ncbr.com/article.asp?id=88256 offer some additional context.

2. One example is Aafcu.com , long one of the best providers of accounts available to all. In April they restricted new memberships to military, relatives of current members, local residents, and their families. At the same time they also limited accounts to one per member. However, members who had already set up multiple accounts were allowed to keep them, demonstrating another advantage of acting early.