Sunday, March 25, 2012

Reward Checking Accounts

I've mentioned Reward Checking Accounts in previous posts, but I think the subject deserves a post of its own. I think a reward checking account could be the best place to stash your short-term savings, up to $10,000 to $20,000--if you are OK with the monthly requirements to get the high interest rate. If you don't meet the requirements in a particular month, you will get a much lower interest rate for that month. Read on for details.

You currently can earn 4.09% APY on up to $10,000 and 3.0% APY on up to $20,000 with a reward checking account available nationwide. Compare this to the 1% or so you currently can get with an online, high-yield savings account, which probably is the next best option.

So this is up to about $400 (4% on $10K) to $600 (3% on $20K) per year in interest with a reward checking account vs. up to about $100 to $200 per year with a high-yield savings account (vs. pretty much nothing in a money market or typical bank savings or checking account). Of course these are pre-tax amounts, so the after-tax benefit will be reduced depending on your marginal tax rate.

I refer to the maximum amount on which you are paid the high interest rate as the "balance cap" (the $10,000 and $20,000 amounts noted above). Note that these are not account minimums; there may or may not be an account minimum for a particular reward checking account, but if there is one, it typically is fairly small. You can keep more than the balance cap amount in the reward checking account, but typically you will get a much lower interest rate on the amount above the balance cap.

Reward checking account deals change constantly. The best source I know of to find a good reward checking account that's currently available nationwide is If you check it out, you'll see that DepositAccounts enables you to see a summary of the features and requirements of each reward checking account listed (click the + sign to the left of the bank or credit union name), and provides a link to the bank or credit union website where you can get even more details. Click on the bank or credit union name to see a list of related posts on DepositAccounts; e.g.,  reviews of the reward checking accounts.

DepositAccounts also lists local reward checking account deals. You can filter by state to see if there's a good local one near you. If you are a member of a credit union, check to see if they offer a reward checking account; sometimes local deals are better than the deals available nationwide. My local credit union offers a reward checking account, and I use it. It's not the best, but it's pretty good, and it's convenient. Two of my adult children and even my teenage daughter have reward checking accounts at our credit union.

The typical monthly requirements to get the high interest rate are:
  • 12 to 15 debit card purchases
  • One automatic deposit, automatic payment, or ACH transaction
  • Electronic statements
You should read about the requirements carefully, as they can have subtle differences. For example, you may have to make your debit card purchases as a credit card; i.e., not entering a PIN. Or, an electronic deposit from another bank may or may not qualify as the required monthly ACH transaction; i.e., you may or may not have to actually set up a recurring automatic deposit or a recurring automatic payment.

My reward checking acccount requires 12 debit card (POS) purchases each month. I usually just make the minimum 12 debit card purchases each month, and usually only for relatively small amounts (I prefer to use one of my cash-back credit cards for larger purchases). Some online purchases qualify as POS purchases for  my reward checking account. Online bill payments do not qualify.

I rarely write checks, but when I do, I  use checks that come with my reward checking account. I pay most bills online, and my reward checking account offers web bill pay for the rare occasion I need to mail someone a check.

So I basically use my reward checking account primarily as a high-yield savings account with a balance cap, and with the additional requirement of having to make 12 small purchases each month to get the high rate.

Since electronic (ACH) payments meet the monthly deposit or payment requirement for my account, I have at least one of my credit cards set up to be paid automatically from my reward checking account. Once each month I transfer money into the reward checking account (from a high-yield savings account) to top off the balance to the maximum, so I'm getting the higher interest rate on as much money as possible.

Reward checking accounts often offer reimbursement of ATM fees (mine does), in which case you can get cash from any ATM for free. I don't use cash much, but this is a nice feature for the rare cases when I need some cash.

One caution: the rates and balance caps can and do change. You may find that after you open your reward checking account, the rate or balance cap is lowered. Ideally you can find an account that has a good history of maintaining their rates and balance caps; this is the kind of thing that often is reviewed in posts on

Another caution: the complexity of the process to open a reward checking account can vary greatly. Also, the bank or credit union may perform a credit check when you apply to open an account. The reward checking account reviews on DepositAccounts often discuss these topics.

For a more detailed article on reward checking accounts, read 10 Common Traits of High-Yield Reward Checking Accounts on the DepositAccounts website.

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