Rewards Checking Accounts Overview

This is a guest post by Dividend Growth Investor. His blog is dedicated to finding superior dividend investments which would provide him with an increasing amount of dividend income.

Over the past year the Federal Reserve has cut interest rates several times, decreasing the Fed Funds rate from 5.25% to 1.00% at its most recent meeting. This has lead to a decrease in the interest rates on many high-yield checking accounts. Savers currently have very few options in order to earn some interest on their extra cash - open high-yield accounts at places that offer a competitive yield and get a bonus or put their money in a rewards checking account.

Rewards Checking accounts typically offer an above average yield to customers who meet certain criteria:

1) Residency – Generally the customer must live within the area of the bank which opened their account or at least in its home state. However, there are some banks nationwide that offer rewards checking no matter where in the US you live.

2) Customers also need to have a direct deposit or an automatic bill pay set up

3) They need to access their bank statements online and forgo using paper ones. Familiarity and use of online banking is essential in rewards checking accounts.

4) A certain number of debit card transactions per month needs to be performed, typically 10-12

5) Most banks would limit the balance amount for which the high yield applies, after which the yield would drop to a much lower level. This limit is typically $25,000.

If you don’t meet the requirements, then your rate drops to a low base rate instead. These requirements vary from account to account though so be sure to read all the requirements before opening an account. There are several positives on opening a rewards checking account:

1) You get an above average interest rate, even higher than most online high-yield accounts

2) Rewards Checking accounts are not tiered accounts that require you to reach a certain balance before you can earn the top yield. Any balance up to the cap will earn the full high-yield as long as you meet the minimum requirements every month.

3) Your account is FDIC insured, which means that if the bank goes bust you are insured up to $100,000 in regular bank accounts and up to $250,000 for certain retirement accounts.

4) Most banks offer you fee reimbursements for using other banks ATMs. Thus if you need cash and you are on the other part of the country you won’t have to worry about finding the right ATM.

5) This product is more profitable for the banks. This means that banks could re-invest profits in the business translating them into more goodies for the consumer.

There are several disadvantages on opening a rewards checking account:

1) If you conduct only 9 debit transactions as opposed to the minimum of 10 or do not fill in any of the other minimum requirements, you will lose your high interest rate for the month.

2) The interest rate on rewards checking is not set in stone for a particular period of time. The bank could change it at any time.

3) There is no incentive to save more money in your rewards checking account above the balance limit. If your balance exceeds the bank limit, you will be paid the rewards checking rate on the first $25,000 but a much lower rate on any amount over that threshold.

4) Rewards checking could be a bait and switch scheme. The above average rates might be used to lure the majority of consumers into online banking, debit card usage and paperless statements. Once the behavior of the customers is changed though, banks could decrease rates in rewards checking significantly.

5) Consumers who use the debit cards forgo earning rewards points if they were using certain rewards credit cards instead of using the debit cards.

So how can banks afford to pay interest rates of 2-3 percentages points above the rates on most high-yield accounts? It’s really simple actually.

First, when they train customers to use debit cards instead of checks, they cut costs on check processing. Banks also earn money each time you use your debit card. Most consumers make a higher number of debit card transactions than the minimum requirements. Second, by encouraging customers to bank online and receive online statements, banks save on sending paper in the mail (think postage). They also do not need as many branches as a brick and mortars bank, with drive-thru windows and extra tellers. (think administration costs) Third, rewards checking accounts increase customer’s loyalty to the bank. And last but not least rewards checking accounts have lead to an increase in NSF fees to consumers who over drafted their accounts.

For more information on rewards checking in your state check out High Yield Checking and Money-Rates.

How to deal with falling interest rates?

The Federal Reserve cut its target interest rate by half a percentage point yesterday to just 1% in an effort to increase lending in the economy. This is good news for the economy ( although the stock market was mixed on the news) and bad news for savers.

The decrease in interest rates will generally lead to a decrease in the high yield online savings and checking accounts which banks offer right now. It could also lead to a decrease in the yields on the high yield rewards checking accounts as well. The best case for depositors is to invest their money in a stable FDIC insured Certificates of Deposit. If the US is going to experience the same low interest rates environment like Japan has been experiencing for 17 years, then locking your savings in a Certificate of Deposit for one to five years could be the best decision of your lifetime.

Last time the FOMC target rate was lowered to 1%, was in 2003. The Fed Funds rate stayed at that level for over one year. In fact last time the Federal Reserve started cutting its benchmark rate, it took over 7 years for interest rates to reach 5%. Thus if you had locked in your funds in a longer term Certificates of Deposit, your savings would have grown nicely by now and even better, you would have outperformed most stock investors.

For a list of the highest yielding CD's check out this page.

This post was selected on the 37th Carnival of Money Hacks: Wonders of the World

National City $200 Bank Bonus

National City has a limited bank bonus offer which expires October 31, 2008.

Offer Details

In order to qualify for the offer, open any new personal checking account online by October 31, 2008, with a minimum of $50 not currently on deposit.

- You need to have a direct deposit to your checking account of $250 or more and a Visa® CheckCard* issued to you within 60 days of account opening.

- Your account must be open to receive the bonus.

- Limit of one bonus per household and available only to households without an existing National City checking account.

- $200 bonus will be credited to your account within 60 days after all conditions have been met.($200 credit is subject to 1099 reporting.)

- This offer cannot be combined with any other offer and may be withdrawn at any time.

To learn more about this offer visit National city Bank offer page from this link.

Certificates of Deposits (CD’s)

Certificates of Deposit let savers lock in a set interest rate for a certain amount of time. Unlike Certificates of Deposit, most ordinary online savings accounts might pay a competitive current yield right now, but savers are exposed to the fluctuations in interest rates.

For example if you had a two year time horizon for your savings and you expected interest rates to increase significantly then opening a high-yield online savings account could be a better deal than locking your money for a fixed term Certificate of Deposit.
If you expected interest rates to decline over the next few years however, then locking in a higher interest rate today in a CD would be a much better strategy.

Both accounts are insured from the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per individual.

You could view the best interest rates on CD’s on this page.

Dobromir Stoyanov

Best CD ( Certificate of Deposits) Rates - 10/27/2008

Below you could fund a summary of the best CD rates for different maturities as of 10/27/2008. You could find the period of the offering, as well as the rate and minimum deposit required by the bank selling the Certificate of Deposit.


The average interest on those CD's is 4.30%. In order for savers to get a higher rate of return on their money, they have to stretch their time horizons further away into the future.

Capital One currently has a 7 year Certificate of Deposit offer special which yields 5.50% but also requires a minimum deposit of $5,000.

This article appeared on Carnival of Personal Finance No. 177 .

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First Post

Welcome to the first post at Blogging Banks!

The goal of this site will be to provide great deals on the best CD rates, checking and savings accounts as well as credit cards. Another factor that I will be focusing my attention on would be bank bonuses for opening accounts!

I have been using bank products for several years now so I know how to manage short term investments.


Wish me luck!