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Why Rewards Checking Accounts Are Not for Everyone

Rewards checking accounts appear attractive to avid savers because they offer extremely high interest rates on easily-accessible funds. However, they come with strict requirements to earn these great rates. Is it worth the effort?

Q: I now have a checking account with a major bank and I’m perfectly happy with it. But, I came across a window ad at a community bank near me that advertised a rewards checking account with a 2.50% rate. The banker told me that I have to use my debit card 12 times, have direct deposit, and opt out of paper statements. Why wouldn’t everyone sign up for this account?- Jay F.

The allure of a rewards checking account can definitely captivate those who’ve been used to earning tiny amounts of interest on their savings accounts. At 2.50% APY, the rewards checking account pays more than twice the leading savings rates that are currently available.

Most rewards checking accounts come with a list of requirements that often include debit card usage, direct deposit, online bill payments and electronic statements. Failing to meet the requirements means that you’ll earn a very low rate.

Furthermore, rewards checking accounts will limit the amount of the account balance that earns the advertised rate. For instance, an account may offer 2.50% APY on the portion of the account balance up to $15,000, and the portion of the account balance above $15,000 earns a much lower rate.

Generally, the account should be the one that receives your paycheck and you should already be making debit card purchases regularly.

If you reroute your direct deposit to the rewards checking account, you might not be able to fulfill the fee waiver requirements for your regular checking account.

And, if you’re the kind of consumer to always use a credit card to earn rewards on purchases, you’ll be breaking your habits to meet the debit card purchase requirements.

It would be no surprise that many people do not both with rewards checking accounts because the interest earnings may not be enough to warrant the effort in fulfilling the account requirements.

People who cannot change their financial setup and behavior would be better off keeping their money in an high-yield savings accounts.

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