How to Earn Killer Interest on Checking Accounts
February 24, 2010
With best savings account rates between 1% and 2%, it's hard to believe you could earn 4% or more with a checking account.
But today, some banks are offering yields up to 5% on checking accounts--stellar returns when compared to money market accounts and CDs, not to mention many traditional brick-and-mortar savings accounts with yields measuring only a fraction of 1%.
5% Checking Account Interest: What Gives?
The answer is in the bottom line for banks, which profit from the way these accounts are set up. Banks earn interchange fees when debit transactions are made--which is why such transactions are often a criterion for earning high interest on rewards checking accounts. And customers with high-interest checking accounts maintain higher balances and stick with the products twice as long as customers with regular checking accounts, says BancVue, an Austin, Texas company that works with banks to set up rewards checking. BancVue says its rewards checking products help banks distinguish themselves, attract new, more profitable customers, decrease costs by converting customers to efficient technology, and increase fee income by driving customers to the right transactions.
Getting Great Checking Account Yields
High-yield rewards checking accounts usually require customers to meet certain qualifications each month. If you don't meet the criteria for the month, you forfeit the high rate. Typically, customers must make 10 to 12 purchases with their ATM card, open their accounts and/or receive statements online, and use direct deposit and automatic bill payment services.
Bank of the Sierra, headquartered in Porterville, Calif., for instance, offers 4.09% APY on reward checking balances up to $25,000, reimburses up to $25 in ATM fees per month, provides free bill pay, e-statement, and a check card, and charges no monthly fee. To get the interest rate deal, customers must make at least 12 check card purchases per month, make at least one direct deposit or automatic payment from the account each month, open the account online, and receive paperless e-statements. (The yield and conditions were as of Feb. 12, 2010.)
Shop for Best Rewards Checking
So should you go for a high-yield rewards checking account?
That all depends on your needs. If you don't think you can make a dozen or so ATM card purchases a month or you want to be able to deal with a teller face-to-face, then stick with a traditional checking account. But if the requirements seem like a good fit with your banking and purchasing behavior, then shop around on MoneyRates.com for the best rewards checking deal. Besides comparing yields, read about the restrictions on the bank Web sites, and check to make sure you're eligible. For some banks, you may need to live in a certain area.
