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When you put money in the bank, the bank takes that money and lends it out to others, charging interest. The money you put into a savings account or CD earns interest for you, but it is a low rate of interest — one that is low enough that the difference between what the bank is paying you to keep the money, and the what the bank is getting for lending it out, results in a profit. Cash products come with low rates of return anyway because, for the most part, they are very low risk, guaranteeing that you get back what you put in (minus any applicable penalties and fees, of course).
In the current market, where interest rates are low, returns are especially dismal. Unless you are fortunate enough to have your cash in a bank that offers rewards checking.
High Interest and Rewards Checking
Many smaller banks are realizing that if they want to compete, they need to offer some sort of novelty product. Paying interest on checking accounts — and not just money market checking accounts — seems to be one way to do the trick. Top yields can range from 3% to 5%, which is pretty good, especially when you realize that even online high interest savings accounts are paying out that much.
You might get other reward opportunities with your checking account as well, ranging from discounts at local attractions and restaurants to reimbursed ATM fees you pay at other banks.
The Catch: Requirements of Some Rewards Checking Accounts
As you might imagine, high interest and rewards checking accounts aren’t just offered up without any strings. Most checking account programs are tiered so that you only get the highest possible yield by meeting certain requirements. Not all requirements are the same; you will have to check your specific bank to find out about the fine print. But here are some of the issues you might encounter as you search for the highest possible yield on rewards checking accounts:
- Minimum balances: You might have to keep a minimum amount of money in you account in order to earn the maximum rate.
- Yield caps on some balances: There might also be yield caps on certain balances. For instance, you might need to keep at least $5,000 to earn the plush 4% yield, but once you reach $25,000, you may only earn 1%. This is done so that banks aren’t paying interest on jumbo balances.
- Debit card use: Some banks require that you use your debit card a certain number of times each month in order to get the best yield on a rewards checking account. The more you use your debit card, the more the bank makes in certain fees.
- Direct deposit/automatic transfer: You might have to have a direct deposit made to that account each month or set up an automatic transfer to go through monthly. In many cases, it’s easier just to have your paycheck deposited into your interest bearing checking account, or to set up a recurring bill to be paid out of your account.
- Online banking: In some cases, banks require that you make use of online banking for some transaction (bill pay, transfer, or just account access) in order to get the best yield. You might even need to sign up for electronic statements.
Before you sign up for rewards checking, make sure you understand the fine print. Earning money on your checking account in addition to the money in your high yield savings account can be a great way to make sure you are maximizing your cash accounts, and earning all the returns you can. After all, you want as much of your money as possible to be working for you.