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Rewards Checking: Where The Yields Are

Many consumers view their checking account as their financial workhorse — a place where cash continuously flows in and then out again to pay bills.

But these days, the right checking account could be more like a thoroughbred — paying off handsomely compared to other savings alternatives.

While the highest-paying savings and money market accounts will earn you about 1% APY, some rewards checking accounts still pay from 3% APY to 4% APY.

The credit unions and community banks offering these top interest rates will put you through your paces to see that kind of payoff.

“Rewards checking accounts are probably the best federally insured accounts now,” says Ben Rogers, research director at the Filene Research Institute, a think tank backed by the credit union industry. “For people who are willing to deal with the hassle of jumping through hoops, they make a lot of sense.”

And for many, the hoops aren’t particularly onerous.

They typically involve using your debit card about a dozen times a month, using direct deposit or electronic bill pay and signing up for eStatements.

In fact, the 2010 Federal Reserve Payments Study found that in 2009, Americans made 109 billion payments, totaling $72 trillion, that didn’t involve cash. Instead they pulled out the plastic, opened their checkbooks or made payments online.

Debit card transactions represented nearly 38% of all noncash payments in 2009, up from 25% just three years earlier, while the use of paper checks fell from 30% to less than 25% during that time.

So these high-yield checking accounts reward you for something you’re probably already doing — using your debit card regularly — and unlike many of the checking accounts at the big bank, they’re generally fee-free.

The accounts are typically offered by credit unions and community banks, which cap the amount on which you can earn the best rate.

The limit is usually between $10,000 and $25,000, and although you can keep more than that in your account, you’ll earn a lower rate on any money above the cap.

You’ll also earn peanuts if you don’t meet your checking account requirements each month.

These low caps mean you’re never going to be able to rely on your checking account to build your nest egg. But it beats parking your money in a savings account and earning nothing.

If someone just has a few hundred dollars to keep in checking, Rogers doesn’t think it’s necessarily worth the effort to open a rewards checking account. But if you’ve got $10,000 to set aside, “that can make a big difference over the course of a year,” earning you $300 to $400.

But it’s important to think of your rewards checking account as a savings vehicle.

Rogers says you might want to keep $10,000 in your account to earn interest and a few thousand more on hand to cover your monthly bills. The key is to exercise self-control and leave the bulk of the balance alone.

While you can prosper from rewards checking accounts, so can community banks and credit unions, Rogers says.

Retailers pay a fee to financial institutions whenever you swipe your debit card. The Federal Reserve capped fees at 21 cents per transaction, plus a variable fee for fraud protection, making for an average swipe fee of 24 cents per transaction.

They’ll also charge you overdraft fees if you go over your account limit, and Rogers says one credit union official told him 30% to 40% of customers fail to meet the rewards checking requirements each month, which can save a financial institution big bucks in interest payouts.

But if you can keep your behavior squeaky clean, you can earn a far higher rate on a rewards checking account than you can on savings or MMAs and even on CDs, which require your money to be tied up for months or years on end.

Here are just a couple recent rewards checking offers highlighted on Bankaholic:

  • Kemba Credit Union ( pays 3.50% APY on balances up to $15,000 for Cincinnati area savers.
  • NavyArmy Community Credit Union ( is paying south Texas residents 3.51% APY on balances to $25,000, and balances above that earn 1.01% APY.
  • If you live in the Orlando area, you can earn 3.04% APY on balances to $25,000 with an account at Old Florida National Bank (

You can expect more coverage of rewards checking accounts from Bankaholic as we find ways to help you profit from your hard-earned cash.

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