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High-yield checking accounts that offer customers better interest rates in exchange for jumping through a few hoops have been growing in popularity in recent years. It's not hard to understand why.
If consumers play by the rules, the accounts can be a great place to stash some cash and actually earn a decent return in this low-rate environment. Banks benefit, too. Research shows the accounts are twice as profitable as free checking accounts.
Bankrate.com, which keeps tabs on bank interest rates and fees nationwide, found that of 211 banks and credit unions it surveyed nationwide, 58 offered a strings-attached, high-yield checking account. None of the 58 identified by Bankrate.com were in Western Pennsylvania, but 41 of them offered accounts to customers nationwide.
The yield on the accounts averaged 3.3 percent, ranging from a high of 6.12 percent to a low of 0.75 percent. Among those were 13 financial institutions offering rates of 4 percent or more to customers nationwide.
Customers must perform certain banking activities to earn the high return. If they don't, the yield on the account drops back to a low default rate, averaging a paltry 0.16 percent, Bankrate.com found. If the customer meets the requirements, then the following statement period, the rate goes back up.
Terms vary, but to earn the best rate, account holders almost always must make a certain number of debit card transactions each month. The average was 11, according to Bankrate.com's survey.
In addition, 91 percent of institutions required customers to use online bill pay and/or direct deposit each month. Roughly half allowed customers to choose between direct deposit and bill pay instead of having to use both, Bankrate.com said.
One direct deposit and/or one bill payment per month was the most common requirement.
Most of the institutions had a cap on the size of the balance that qualified for the high yields. The most common cap was $25,000. That means that amounts exceeding $25,000 earned the default rate.
To get the biggest bang from that type of account, customers should treat it more like a savings account than a checking account by keeping a significant balance, said Bankrate.com senior financial analyst Greg McBride.
"The people who will use this most effectively will not be using [their] debit card to purchase a big screen TV," Mr. McBride said. "They'll make the required [debit card] purchases with incidental transactions, a tank of gas here and there."
First Published March 30, 2010 12:00 am
