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Your Take: Do You Use High Yield Reward Checking Accounts?

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Stacks of Bound $100 BillsAbout a year ago, a new type of checking account start appearing all over the place. They were basic checking accounts with, seemingly, abnormally high yields. It was not uncommon to see them offering over 5% APY on a checking account. Normally, checking accounts offer a very generous 0% APY. In fact, one of the reasons I recommend credit unions is because their share draft accounts, another name for a checking account, usually offer something slightly higher than zero.

When the high yield reward checking accounts first appeared, many people thought they were scams. You had the usual “if it sounds too good to be true” alarms going off but if you read the terms and conditions, it’s clear how they are able to provide such high rates. I won’t go into those details here but if you aren’t familiar with these types of checking accounts, you can click here to read more about high interest reward checking accounts.

I never took advantage of them because none were local and, to be honest, I’m just lazy. I’m curious if you took advantage of them and what you thought of high yield reward checking accounts. They’re still available now, though at slightly lower interest rates, and do current high yield savings account rates make them more attractive?

(Photo: pocheco)

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36 Responses to “Your Take: Do You Use High Yield Reward Checking Accounts?”

  1. I signed up with Evantage, and just as I was completing the application process, they lowered their rates down to 4%. That is still better than anything else I can get locally, so I have stuck with it. But, I found a few that are still offering 5%, and I think I’m going to make the switch soon.

    As far as the requirements (10 transactions with the debit card), I found lots of ways to make simple $1 charges: you recommended some charities, but I also charge an occasional soft drink at a gas station, and my favorite charge is using Redbox. We were going to Redbox before anyway, so this way it is sort of like I get to do it for free, and still earn a good return on my money in the account.

  2. You mentioned you didn’t do it because you are lazy. I would think it takes little more effort than Smarty Pig, and you get a better return…

    Anyway, yeah, I like them. If you happen to find some that are returning 5% or better, let us know. So far the only good ones I found require opening the account in person (in Georgia), but I can probably manage that next time I am on vacation.

    • Jim says:

      I don’t use SmartyPig either :)

      I think they’re great, especially given interest rates today, but the 10-15 transactions a month can be a little annoying.

      • You know, you could always take the advice you gave in the post from a year ago… Just sign up with several charities, and contribute $1 to each. I am only signed up with 2, because I easily get the other transactions from Redbox, but I would think it wouldn’t be too hard to find 10 so that it would be completely automated, and you would never have to mess with it at all. Basically a continual CD with awesome interest rates, and compounds monthly.

        • Jim says:

          :) I know, I think inertia is just holding me back, plus I’ve been working so hard to make things simpler… this seems counter productive. :)

  3. I opened my first reward checking account at a local credit union in January 2008 when the rate was 6.01% for the first $25K. The top rate is now 3.01% APY which isn’t too bad if you consider most online savings accounts pay less than half of that.

    I’ve done some recent posts comparing the rate history of reward checking and online savings accounts. Overall, reward checking rates are holding up better in the last two years.

    If you don’t mind the debit card usage, they can be a useful place for your emergency fund. Also, it’s another reason to support your local community bank or credit union. If there are no local reward checking account options, there are several banks that offer reward checking accounts nationwide.

  4. zapeta says:

    I use a rewards checking account through a local credit union. It was paying 5.01% but has dropped to 4.01% which is still great considering the account is liquid. The requirements are to have a direct deposit or bill pay each month, get e-statements and make 12 debit transactions. Like everyone else has said its easy to get to 12 although I don’t have any special automated setup. I just use the card when I would normally buy things and keep track until I get to 12 after which I switch to using my rewards credit cards. A bonus that my credit union has is that they will refund up to $25 of ATM fees as long as you qualify for the high rate each month. I keep most of my emergency fund in the checking account due to the high rates. If I were to need it, I wouldn’t have to wait a couple days for the money to transfer over to my checking. Anyway, I highly recommend a rewards checking account!

  5. mgessford says:

    I used to use one, but closed it at the end of 2009 when they changed the debit card requirements to 12 $5+ transactions per month. Prior to the change, I made 12 $1 payments on my cable bill each month. I used this account to earn interest on the 0% credit card balance transfer “game” I was playing. Now that 0%/no fee balance transfers are gone, the extra work is not worth it for my “on-hand” cash.

  6. cubiclegeoff says:

    I have never had luck finding one in my area. I probably haven’t looked harder because I’m too lazy to switch my direct deposit. Plus I don’t like using my debit card that much, which keeps me away. Although I should look into it more because the rewards from my credit card may be far less than the potential interest.

  7. cubiclegeoff says:

    Actually, now that I think about it, with the rates how they are and banks in my state that offer rewards checking (with rewards debit cards), it’d be much more lucrative to do rewards checking that use my rewards card. I may have to think about going forward with this.

  8. I’m with you Jim, the idea sounds really interesting but I’m too lazy to look into it. Also, I would find it difficult to get my money if they didn’t have any local atms available to me.

    • cubiclegeoff says:

      The ones I looked up this morning gave a rebate for using any ATM (the 2 I looked at gave a rebate up to $25 a month).

  9. Daniel says:

    To meet the minimum debit card usage, I have turned to the gas pump. Use the debit card to pump a gallon, then turn off the pump and repeat. I will get my 5 transactions in one trip for something I definitely need anyway. The station attendant must thing I am crazy.

    Do any of these accounts allow the initial opening deposit to be made via credit card w/o fee to aid with reward tier busting?

    • cubiclegeoff says:

      I’m surprised this doesn’t set off a fraud alert.

      • govenar says:

        I do something similar but I limit it to 2 or 3 transactions in a row, to reduce the chance of a fraud alert. (And the gas pumps are kinda annoying; they pause for a while after printing a receipt before you can start a new transaction).

  10. jennifer says:

    I have been doing this for a few years in combination with credit card arbitrage. The credit card deals dried up for a a few months, but the offers have started up again! We have 4 accounts at our local credit union. I have only been using 2 of them right now (10 debit transactions per account), but now that we have a few more offers, I might start using the other accounts. I just put a mini post it on each card and mark them when I use the card. Swap out the card when I’m done with the first one. I split up my groceries every trip–that helps.
    ***The gas trick did trigger a fraud alert at my bank***

  11. Susan says:

    I have several reward checking accounts. Yes, it’s quite a bit to keep up with, but worth it in my opinion for the yields (mostly 4% now) on my liquid money. I make small payemnts to cable and cell phone online. I also use it for small charges out and about. I received a notice from one of my accounts last week that they will be monitoring my account, as it appears I am using it in a “calculated” manner and it’s meant to be used as your main checking account. I’ve increased my debit charges slightly. It will be interesting to see what they do with it.

  12. Olivia says:

    Oh yes, I LOVE my rewards checking account. I opened mine a year ago at 6% interest and it is STILL at 6% interest (we are with a local credit union in Southwest Kansas). This account has been so great and we don’t really even have to think about getting our 10 debit transactions for the month.

  13. Bob says:

    You could get a similar yield in cashback from credit cards on your purchases through a credit card that offers cashback. In my opinion, it’s easier to get 4%-5% cashback through a credit card than through a rewards checking account. To maximize your credit card cashback, figure out your total monthly expenditures and make sure you have 75% more available credit (so that your credit score doesn’t get dinged). For instance, let’s say you spend $2,500 per month. Make sure you have a credit limit of $10,000.

    • Susan says:

      I agree you can get better cash back through a rewards credit card, but that doesn’t solve the problem of earning little to no interest on your liquid funds. The cash back rewards that I lose out using my debit card are very little, as my charges on the debit card are typically less than $30 per month. Even at 5% cash back, I would only receive $1.50 back. Instead, I can earn over $80 in interest (assuming 4% on 25k).

    • govenar says:

      Those two things aren’t really related at all; one doesn’t prevent you from doing the other.

      • Mike says:

        At my young age and looking at the state of the stock market, I’d rather spend what extra money I have in high yield stocks than playing these checking rewards games. If I need them in an emergency I’ll sell em.

        I find that I save more money on a rewards credit card anyway.

        Seriously, looking at some of the messages here about how people meet the 10+ debit limit is laughable.

        • jennifer says:

          Mike…yes, it is laughable how we meet the 10+ debits, but to each his own. Our tax guy this year was fascinated with how we earned a few thousand dollars in interest in 2009. My husband just laughed and said his wife was pretty creative :) In the last few years, we’ve both had 2 accounts at one bank with balances normally around 100,000 (all from credit card arbitrage–but that’s a whole different post) and we are earning interest on all this money! I am the one who is laughing now :)

  14. billsnider says:

    I have all my bills tied to either my credit card or checking account. If I change either or both, I have to spend time redoing my account.

    I better get a real and significant return to make me want to change.

    Bill Snider

  15. govenar says:

    I use a local rewards checking account. I didn’t want to deal with the hassle of mailing a notarized driver license, etc to a bank in another state; and I figured they’d keep the rate high longer than a nationwide bank that’s flooded with deposits. They still dropped the rate though; but not too much: 4% in 6/2009, down to 3.49% 12/2009. The 10 required transactions per month are kinda a pain; I was considering opening a second rewards checking account, but I think 20 transactions per month would be too much of a hassle.

  16. eric says:

    I’m a big fan, Jim. I was skeptical at first and honestly quite lazy to get around to doing it. But once I found one that was local, set it up, and automated the debit transactions (10 small payments to my internet provider), it was super easy. I actually kicked myself for not doing it earlier. I’ve been at it for less than a year but I’ve already made a few hundred dollars from interest and even better is that after the initial work, it became a set it and forget it thing for me.

  17. Tommy says:

    All of this overlooks that anything on line is not safe. Hackers have ways.

    • daenyll says:

      the banks have all the information on computers generally networked to somewhere else, so the hackers can still get access whether you use the internet to control your banking or not

    • cubiclegeoff says:

      The non-online world isn’t safe either. You could get robbed, but that doesn’t keep you holed up in a cave. There’s risk with anything, but it’s far less than it’s made out to be.

      • jsbrendog says:

        agreed. this excuse just is not very valid anymore, especially with advances in technology.

  18. BrianC says:

    So far the hassle factor has kept me away from these accounts. I’d reconsider if I needed to keep more assets liquid, though.

  19. jsbrendog says:

    “I never took advantage of them because none were local and, to be honest, I’m just lazy.”

    basically.

  20. not given says:

    Some gas stations will put a hold on $1 of your checking account until the transaction posts to your bank account, others will put a hold of $75 on your account for each transaction even if it’s only a few dollars worth of gas. Divide your fill-up between three transactions and you could have a $225 hold on your account for a few days for $30 of gas.

  21. lisa says:

    I’ve got one, it’s from a local bank and pays 5%. Love it.

  22. Sam says:

    I love my high yeild checking account. For mine, I have to do 10 debit transactions a month (I usually have atleast 15), need one direct deposit or withdrawal (have my paycheck auto dep there), login to it online at least once a month. I am currently getting close to 4% interest although it varies every month..

  23. cubiclegeoff says:

    I followed up with this and ended up opening an account. 3.94% APR, with an almost maxed out account (to the max limit to get the 3.94%). So far, I’m happy with it. I do 2 direct transfers from my other checking to take care of the “direct deposit” transaction, and do my minimal purchases on the debit card. Although I lose a minimal amount from not using my cash back card (about $4 a month) this way, I make it up significantly in interest, even after taxes are paid on it. I’m glad I opened this account.


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