Sticking it to the Banks (with Reward Checking)

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Banks are offering yields as high as 6.25% on Reward Checking accounts.

The banks in this country have had a long history of making profits off of us by charging fees for every little transaction - at the same time they pay us lousy deposit rates for the money we give to them to loan out and in turn earn their bank nice profits. A new banking product that has cropped up recently which may finally give us consumers a chance to strike back. The Reward Checking account is an account which pays a top-tier yield (currently as high as 6.25%) for accounts which met monthly requirements (in some case including using direct deposit, online bill payment, auto ACH debit, and/or receiving eletronic statements). The catch is that in many cases the yield only applies up to a certain deposit amount and if those monthly requirements are not met then the rate earned on the account is the type of paltry rate we are used to our banks paying us.

The banks are not in the habit of giving away money, they just don't think that the new banking customers that sign up for these accounts will have the diligence to set up their accounts correctly and in fact earn the 6.00% or better yields. But if everyone can get their financial house in order and set up a few auto-debits and online bill payments and give up their paper statements, then these banks are going to take a hit. Another factor is that the banks are not counting on their customers using these as investment accounts. They see these as typical $1,000 to $5,000 average monthly balance, high banking activity money-makers for their banks. Again, a little diligence and an investor can earn better than 6.00% by using a few of these banks and their Reward Checking programs in combination with one another. Now just where else are we going to earn 6.00% and be FDIC-insured or NCUA-insured?

After about 90 days and maybe 2 calls to the participating banks with problems I have earned the top yield which among the three accounts averages 6.17% on about a $59,000 combined average monthly balance. The alternative from my own investment standpoint would have been a checking account earning 0.50% if I was lucky and a 90-day Treasury Bill with the remainder earnings close to 3.55%. Of course the U.S. Treasury Bill or a 90-day CD would not be liquid like my Reward checking accounts.

It has been made apparent that banks profit considerably when we use their check cards and debit cards. They also profit when they switch rates on us and confuse us with their myriad of fees. I am pleased to cut into their profit margins and take them for the 6.00% that they do no think I have the aptitude to earn.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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Comments

  • tightwad

    December 07, 2007

    I just can't see it lasting. Nothing good ever does, but these are great for people who use their debit cards 10+ times a month. Why not earn a great return at the same time?

  • Banker

    December 09, 2007

    Good article. I will tell you that banks want you to set up bill pay and debit card transactions because they are sticky transactions, that is they keep you with the bank. Once you become a bill pay customer you are 30% less likely to leave, which makes sense because you've taken the time to set up your payees, etc. It's also true that banks don't make as much money from these customers. The real profit centers are the 70 year old widows who stash their money in CDs, keep letting them roll over at low rates, and who rarely call the bank, use the ATMs, or call.

    If you are disciplined to stay with the requirements you can make some good money. But when the bank drops the rate, they are counting on you to stay, because they have you in their Web.

  • cowmilker89

    December 10, 2007

    Maintaining most of these Reward Checking accounts is kind of a hassle - some of them only pay the high rate on amounts below some ceiling, many of them require 10 debit card transactions a month, and if you're retired or get laid off, bye-bye to the rate and fee waivers. I don't know how you have the time to maintain one, let alone more than one. If you really want to "stick it to the banks," look into a credit union account or an on-line bank. Some on-line brokerages also allow check-writing, plus they have money market accounts and checking accounts. A few of them even have local offices.

  • Oneslip

    December 15, 2007

    I think these accounts are a great alternative for people that use those services to begin with. I personally do not have a debit card and do not appreciate them. I am more of a saver and these types of accounts encourage spending by making a person use thier card 10 times mnonth and also a lot of people do not remember to write down all of thier debit transactions which could cause them to overdraw thier account and incur a NSF charge. Have 2 people working out of the account and it is even worse.

  • Liverpool08

    May 07, 2008

    Thanks. Just find a 6.01% rate listed on Money-Rates.com from a bank in my area that I did not know about

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