We have been using Rewards checking accounts to park our first time home down payment savings. Staying in Southern California, that is a good chunk of money which has to be liquid in a no-risk saving vehicle. I use online savings account for all my other goals, but as the down payment savings was a substantial amount of money (to us), I wanted to make it work more harder – enter Rewards Checking accounts. You might have heard about it by the name Kasasa Cash, Turbo checking, Super rewards checking, Absolute checking, My choice checking or simply priority checking. They usually pay 2-4% more than online savings accounts or big bank checking accounts. So what is special about these accounts? What is the catch?
What are Rewards Checking Account?
A few years ago small banks were being thwarted by mega banks from one side offering “free” checking and ATMs in every corner and online-only savings from the other side with high interest products. It was a difficult competition for the small banks and credit union – until a company called BankVue came up with a solution to offer them a strong running. Thus was born the Rewards Checking Account. The basic idea is, the banks will offer customers a high interest checking account with ATM fee rebates, free bill pay, direct deposits… all the usual goods, BUT you get the higher interest IF AND ONLY IF you jump through some hoops. If you don’t satisfy the conditions, you will get a simple free checking account with abysmal interest rate. The higher interest will attract new customers, the banks can make money by cross selling other products, credit cards, etc. BancVue actually guarantees that “Reward Checking relationships will be twice as profitable as your Free Checking relationships”
What is the catch?
The catch is simple – you have to satisfy a couple of requirements every billing cycle to qualify for the high interest for that cycle. Most common requirements are
- 10-15 debit card transactions
- at least 1 bill pay
- at least 1 direct deposit
- sign up for paper less statements
- Log into your account at least once a month.
- (Not a requirement but just for information) the rate only applies to the first $10000-$25000.
if you miss any one of those in a month, you won’t earn the “reward” interest, but the lower general interest for that one month. Other benefits like ATM rebates stay the same. If you miss the interest one month, that doesn’t mean you won’t get a higher interest in the future, simply satisfy all the requirement the following month, you will get the high rate for that month. This is simple enough for people who use debit card regularly, but for people like me who use credit cards extensively and don’t want to touch this savings for anything other than a particular goal, it become a trouble.
Rewards Checking Account Strategies to maximize the potential
As I said before, I don’t like spending from my rewards checking account. It is for my home down payment. And I don’t want to miss out on my credit card rewards, so I do very small transactions in this debit card and do the rest in my credit card. There are different strategies to make it easier and maximize both the rewards checking AND credit card rewards. I will start with my approach -
- I have a threshold $5. Any purchase below this (which I will make anyway) will go in this debit card. For the rest I use the credit card. So if I make 10 transaction up to my $5 limit, I would spent $50 with the debit card and will miss out $1-$2.50 (2-5%) credit card rewards. I am ok with that. At the end of the month, when I pay my credit card, I will pay myself the amount I spent from my savings and transfer $50 to my savings account. If I am nearing the end of the month, but have not make enough transactions, then every time I fill gas in my car, I purchase a couple of dollars worth of gas with this card first and fill the tank with my credit card. It takes a few extra minutes. So far it has worked well for me. To make it easy to remember how many transactions I have done, I have a “count” on my debit card.
There are some other approaches people have -
- Some people set up automated penny transactions to satisfy the 10-15 debit card transaction requirement.
- Some people break one of their bills. For example if your cable bill is $30, they pay with this card 10 times $1 and pay with their credit card the rest ($20). As this can be done by auto pay, there is no work involved.
Is it worth the extra trouble?
Is it worth it to jump through all the hoops to get the extra 1-3%? It will be for a lot of people who are saving good amount of cash. So the answer is going to be – it depends.
- If all you have in liquid amount is your emergency fund or short term vacation fund, then an online savings account might do it.
- If you are savings a lot of cash and already use debit card frequently, you should definitely look into these account.
- If you are saving for a large purchase, are organized and disciplined to go through with the requirements, it will be worth it.
- You have enough money to make it worth while.
For me, as I said, we are saving for the home down payment and we could use every extra penny. It is worth it for me.
How to find Rewards Checking Accounts?
Here are some resources to check which banks are offering this type of account. Don’t forget to check with your local small bank or credit union.
- Deposit Accounts Rewards checking – By default it shows nationwide, include your state of residency as well as nationwide, gives much more better options.
- Checking Finder – A product from BankVue, but it is not as comprehensive as the deposit account finder.
- Google rewards checking + [your state] to make sure you didn’t miss any banks.
Do you have a rewards checking account? Do you have difficulty qualifying every single month or do you find it easy?
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