Ken at Bank Deals recently ran the numbers and discussed how banks make money on these accounts. Unfortunately, the economic environment is making it more difficult and unlikely that the banks will continue to offer the great rates we've seen in the past.
The jist of reward checking is that you have to jump through some hoops to qualify for the rate. You generally have to use your debit card a minimum number of times each month, get electronic statements, and more. By using your debit card, the bank collects a fee (called an interchange fee), which helps them pay you the high rate. The more you use the card, the more fees they collect.
Reward checking is a great deal, but you should expect more difficulty earning the highest rates. Ken suggests using accounts at local institutions, as they'll more likely attract Average Joes who help the bank earn money - not just rate chasers nationwide who do the bare minimum to qualify for better rates.
Further reading:
Great article summing up the mechanics behind reward checking! Community banks/credit unions offering the highest typically have three requirements: minimum debit card usage (I think 10/month is standard), direct deposit and online banking. All of these save/make banks money which is then passed on to the consumer.
CheckingFinder.com is a search tool that identifies community banks/credit unions paying up to 6%. Just type in your zip.
Hope this helps!
I also wanted to share this MSNBC Post on Banking trends:
December Data Confirms Community Banks Winning Battle for Deposits
Highlights of the study include:
1. Deposits in REWARDChecking accounts jumped another $183 million in December.
2. Demand deposit accounts are now being offered by 477 community financial institutions across the country, an 82% increase in the network from a year ago.
Follow link for the original report:
http://www.msnbc.msn.com/id/28757512/
Cheers!
Unfortunately you and your friend missed the point. Rewards checkings makes most of its money off NSF fees. Customers swiping a debit card 12 times a month generate nearly twice the nsf fees than a customer not swiping despite the high balances. Vendors for these program actually charge the bank for their services earning two thirds of their fees for the product from NSF revenue. Like all checking today, great deal for those who dont overdraw paid for by those that do.
@freemkt1 I find it hard to believe that the type of customer that would open a rewards checking account would fit the same profile as one that would generate NSF fees. Thats not to say it couldnt happen, I just don’t think there are enough customers over drafting to cover the interest of those who manage their account properly
A way you can avoid these fees, and maximize your earned interest would be to use a service like MicroMaximus.