Remember the days, before the financial crisis, when you could get 4-5% interest from a certificate of deposit?The stock market was humming along, housing was hot and a little worrisome, and the risk averse among us could happily sock away money at high rates without fearing a loss of principal.
While that days may be gone, and gone for a while, there are still opportunities out there for us to earn 4% on our money without risk. It does come with a little extra work though.
Reward checking accounts, made popular years ago, are looking more and more appealing as safe ways to earn interest are looking increasingly rarer. A reward checking account is a checking account that offers relatively high interest rates as long as you meet a small set of requirements.
How Reward Checking Works
A prototypical reward checking account looks like the one offered by Consumers Credit Union, a credit union headquartered in Waukegan, Illinois. As of 5/9/2012, you can earn 4.09% APY on savings up to $10,000 in the checking account as long as you:
- make twelve (12) Pinless (any transaction that does not require a PIN) debit card transactions posted to your Rewards Checking account;
- you are enrolled in Home Banking and receive e-statements; and
- you have a direct deposit or ACH debit (including Bill Payment) made to your Reward Checking account.
If your balance is greater than $10,000, any amounts over that earn a much smaller interest rate. If you fail to meet all of those requirements, the APY drops to 0.01%.
Reward checking accounts can offer higher rates of return because they generate income off the debit card transactions and pass that along to the account holder.
Is It Worth The Hassle?
The hassle is in making the twelve pinless debit card transactions each month. Some banks require more than twelve transactions, some as high as 20. If you can meet that minimum number without changing your habits, then a reward checking account won’t cause you undue stress.
For many people, who rely on reward credit cards, making an extra 12 transactions a month is an extremely high number. Whether or not it’s for you will depend on how much you’re willing to take for the extra cash.
If you are considering a reward checking account, be sure to read the fine print carefully. The drop in interest rate, for failing to meet the requirements, is significant.
I’ve personally never opened a reward checking account, though I’ve been extremely tempted, but I do think it makes for a great option if you want a high risk free rate of return.