Reward checking accounts have become very popular in the last few years because they offer high interest rates on accounts that typically offer none at all. They would routinely crush the rates offered by high yield savings accounts because the banks are passing on their transaction revenue to you in the form of higher interest rates (that’s why they require you to make 10-15 debit transactions a month!).

The hardest part about qualifying for the higher interest rate is that 10-15 transaction requirement. The others, like online banking and paperless electronic statements, are trivial. If you’ve been wondering whether the additional hassle is worth it, let me offer up a few ideas on how to hit the 10-15 transaction requirement and then you can decide if the hassle is worth the interest you’d earn.

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It’s been almost two years since I last looked at reward checking accounts and I thought it was about time we checked them out again to see what had changed. Two years ago, most reward checking accounts offered over 5% interest on deposits of up to $10,000 (sometimes $20,000 or more) if you satisfied certain requirements. Those requirements often included a dozen charges on the debit card, online banking, and paperless statements.

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Reward checking accounts have grown in popularity as everyone is looking for a way to earn a little extra cash as safely as possible. Here’s a refresher on how they work – You earn a higher rate of interest if you make a minimum number of debit cards per statement period (usually 10+) and opt for paperless statements and online banking. If you don’t meet their requirements, you don’t get the higher interest rate.

I haven’t been sharing many of these offers because they’re all the same, except this latest offering from South Shore Savings Bank. Not only can you get a 3.69% APY on deposits up to $25,000 but you can also get a $200 bonus just for opening an account. There is no special account requirements for the bonus.

The requirements for the rewards checking account are:
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Almost six months ago, I wrote about high interest reward checking accounts. Back then, the economy was weak and banking was in turmoil, yet these small regional banks were offering exceptional rates on a normally pedestrian checking account. We learned about their business model and the accounts made sense, unlike the 5% APY CDs that Washington Mutual was offering before they collapsed. To briefly recap, reward checking accounts offer high interest rates because they require you to make ten to fifteen card transactions each month and the fees from those transactions fuel the high rates. There are other requirements designed to cut costs, such as paperless statements and online billpay.

How are they doing now?

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While at Disney, I had a chance to chat on the phone with Teresa McUsic, Savvy Consumer columnist for the Dallas-Fort Worth Star-Telegram, about reward checking accounts. It was wonderful to see that conversation blossom into a post about how saving can be lucrative, an article in which she explains how reward checking accounts work.

If you were wondering whether reward checking accounts were a scam, wonder no more because she spoke with Mike Monroe, president of Legend Bank and one of the banks offering a high yield reward checking account called the Ultimate Checking account (5.13%). They’ve offered it since April 2007 and hasn’t lowered the 5.13% rate:

“It’s not a bait-and-switch account,” he said. “What it costs the bank to process a check item, if the customer uses their debit card instead, we’re able to turn around and pass that savings on to them.”

I’ve talked about high interest reward checking accounts, worth checking out if you are unfamiliar with the concept.

Last December, I looked at a random reward checking account trying to determine whether reward checking accounts were worth all the hassle. My verdict was that they were worth it because they offered such a fantastic rate of return on a checking account, with most of the headache focused around the debit card transaction requirements. Well friends, it looks like I’ve learned of a simple way to get around that requirement – donations.

Basics of Reward Checking Accounts

The idea behind high interest reward checking accounts is that you can earn a higher rate of return, typically in the 5% APY range, by satisfying some simple conditions. The two most common conditions are 10-12 debit or signature based transactions using the debit card each month and an ACH direct deposit or direct debit each month. If you satisfy those two, you get the higher rate. If you fail to satisfy those two, you get a much lower rate. The banks earn money on the fees they charge on the debit transactions, which is how they can afford the higher rates. The rates are often higher than savings accounts rates, certificate of deposit rates, and money market rates.

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What do you think of a checking account at a small regional bank offering CD rates level yields? That’s right, a checking account that offered 5% APY or 6% APY? I bet your fraud detector would go flying off the radar, that’s what mine would do! However, you’d be wrong. Reward checking accounts are legitimate checking accounts and the yields are real, the only downsides are that they come with stringent rules that must be followed if you want to achieve that yield. If you’re able to follow them, the rewards are great.

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