Why You Need a Rewards Checking Account

by Kevin on March 16, 2010

I raved about rewards checking accounts when my wife and I moved our main accounts last summer. For those of you that are still on the fence, here is some additional data on why you should switch.

Rewards Checking Accounts Have Better Rates

The proof is in the pudding. Or in this instance, the numbers.

  • Highest national bank savings rate I can find: 1.28%
  • Interest rate with our rewards checking account: 3.61%

Granted, the rewards checking account gives you that great rate on the first $25,000. (After that it pays 1.01%.)  But I’m guessing reaching that cap would take a while for most people.

How much is that interest worth to you?

  • $25,000 at 1.28% = $320
  • $25,000 at 3.61% = $902.50

The difference? $582.50 in interest per year.

Even thought it is a “checking” account we leave a majority of our money in the account to earn the higher rate. It’s like the best of both worlds — you don’t have to worry about limited withdrawals like a savings account, and you’re getting a much better rate on top of it.

Reward Checking Accounts Come with Better Service

You won’t find an above-average interest rate tied with a rewards checking account at a big bank. They’ve got too many customers willing to accept 0.2% (or less!)  interest payments.

No, you’ll have to go to a local, community, or regional bank to find a rewards checking account. That may sound risky, but in reality you will get better service.

Plus, big banks may feel safer, but remember the bailouts during the financial crisis? Those were big banks getting bailed out.

National banks will never provide the level of service that a local or regional bank provides. The staff at my community bank recognize me, know my name, and know my wife’s name. I’m not just a number. I’m a customer. There is some value in that.

You Already Meet the Requirements for Rewards Checking Accounts

Yes, our rewards checking account has requirements. It’s no big deal.

Here’s the kicker: you are most likely already meeting the requirements for the account.

Our account requires 10 debit card transactions, online statements, and 1 direct deposit or bill pay each month. You’re telling me you don’t already do that with your current bank?

One Major Risk to Consider

That having been said, why wouldn’t you open an account? You’re meeting the requirements, and you’re getting a much better interest rate.

I’ve embraced this type of account. We are very happy to be earning a ton of interest every month with a higher rate.

But there is one major risk you’ll need to consider. More on that in my next post. Stay tuned. (Subscribe via RSS or e-mail updates so you won’t miss the next post.)

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{ 10 comments… read them below or add one }

Jim Juber March 16, 2010 at 12:55 pm

Yep, Rewards checking account is the way to go. I opened a Rewards Checking account with a credit uniono in January of 2008. At the time, it was paying over 4%. Since then, it has dwindled to 3.2%, but its still better than any other bank in my area. The same rules apply, 10 debit card transactions, direct deposit and online statements (on deposits up to $25,000). This is the account I plan to continue using to hold emergency fund, short term savings and day to day money needs.

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Kevin March 16, 2010 at 8:13 pm

That’s what happened with ours. 4.41% down to 3.61%. Still better than any other bank we could find!

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Budgeting in the Fun Stuff March 16, 2010 at 2:40 pm

I’m looking into First Community Credit Union for us right now since they have 4.01% rewards checking. We only hesitate since we don’t use debit and it would require 12 debits a month and a ACH credit (which would be easy).

That doesn’t seem like a big deal, but I really dislike debit cards…I’m so used to being able to see everything at once on my credit card statement and paying it off with one lump sum.

We’d also need to close our Smarty Pig accounts that are at 2% right now anyway.

I’d chalk it up to 70% debit card avoidance and 30% laziness. I’m still considering it though…

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Kevin March 16, 2010 at 8:14 pm

Here’s a task: calculate how much interest you would earn versus how much you are currently earning. The annoyance of having to swipe the debit card 12 times will probably seem pretty small compared to the interest you could earn. Obviously that depends on your account balance, but if you’re smart and have a significant stash… why not?

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Budgeting in the Fun Stuff March 16, 2010 at 2:49 pm

I meant 3.01%, not 4.01%…oops.

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Rosie March 17, 2010 at 10:37 am

Have used a reward checking account for a few years. Went from paying 6.01% until Jan to 3.65%. Not hard to remember to use the debit card. My husband eats 3 bananas a day so I buy them a couple times a week. That is 8 times a month already. I stop at the $1 store for sympathy cards, or their Awesome cleaner or their Awesome spot rug cleaner or I stop for a chicken wrap on grocery shopping day etc. My 10 debits are done. My credit union also counts an auto debit so I have my credit card paid in full each month from their in case the retirement check goes in the last day of the month. This credit union also counts even a $10 transfer used with on line banking. They send me a couple of notices a month by email to let me know how many debits I have done also. I worked at a bank for 30 years. The credit unions are great.

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Golfing Girl March 17, 2010 at 11:43 am

Sorry–Devil’s Advocate here. As someone who uses a rewards credit card and a high interest online savings account, I cannot benefit from a rewards checking account. I simply don’t ever make debit card purchases, let alone 10/month. I use my credit card for everything so I can earn my 1.25-5% cashback. And my checking balance isn’t high enough to make a big difference in earnings. All my extra money goes into my ING account.

I’m pretty fastidious about my finances, but I guarantee I would forget to make 10 transactions after relying solely on my Amex card after all this time.

That being said, those without rewards credit cards and already using debit cards would benefit from this greatly and it would be worth the effort to look for such an account.

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Kevin March 17, 2010 at 1:30 pm

I completely disagree! The reason why? I am a hardcore AMEX and ING Direct user as well. That is the exact same setup we had.

Here’s the kicker: ING is paying what, 1.15% these days? So we dumped all of our money together into the “checking” account and just differentiate it on a spreadsheet. The money is still there, but it is earning a higher rate.

To have AMEX’s cash back beat out a 3 or 4% interest rate would mean you have a ton of charging and not a lot of money in the bank.

The past few years I’ve earned $400 or so per year from AMEX and that was with a lot of work lunch charges.

If we maxed our accounts out… that’s $900 in interest. I would have to more than double our AMEX spending — nearly impossible for us — to reach that amount.

Plus you can use the debit card for 10 small transactions then switch back to AMEX. This is exactly what we do.

It truly is the best of both worlds IF you have the cash on hand to earn interest on. If you don’t, then, well, that’s not good :)

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Karl September 1, 2010 at 8:00 am

I am in the same boat as Golfing Girl, as I use my credit card for most of my purchases. Since the credit card transaction cost is built into the price of the good (2-3%) I see it as cheating yourself if you are paying cash.

Also, Kevin have you looked into the costs of meeting the transaction requirement versus the amount of interest earned per month? I would hope it would be a net gain. I get the feeling that many people are distracted by the high yield and don’t consider they are chipping away at it with each purchase.

If you or anyone else is interested there is a service made specifically for reward checking account holders that allows for scheduled micro-transactions. It’s called MicroMaximus

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Rosie September 1, 2010 at 8:18 am

Well we now are in our second reward checking account. I found that I did not have any problem last month getting the additional debit card transactions. I use it for a gallon or so at the gas station when I fill the can, when I get a loaf of bread, when I picked up something at the $1 store, picked up a chicken wrap. Last month they had all the school supplies on sale so I went from store to store to shop for the grandkids and picked up other things for my nieces and nephews. I had 25 debits for 1 to 3 dollars in the first 2 weeks of the month.

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