Your Checking Account: Lessons in Personal Banking
High-interest NOW accounts have become prevalent throughout the industry. They pay a higher interest rate than typical NOW accounts and frequently function as loss-leaders to drive relationship banking.
In 2003, banks and credit unions began to establish maximum balance accounts, which pay a premium rate up to a specified cap and a lower rate on balances above the cap. This counter-traditional trend (banks had typically established minimum account balances rather than maximum account balances) developed as a way to allow financial institutions to attract multiple customer relationships while limiting the interest expense associated with each account.
The first maximum balance, high-interest checking account was offered in 2003 by a small community bank in New Mexico, Pioneer Bank. In 2004 and 2005, several community banks in West Texas expanded the idea, and a 3rd party vendor, BancVue, combined the maximum-balance concept with the idea of a higher yield for specific behavior (introduced by City National Bank in Taylor, Texas) to create “Reward Checking” as a stand-alone product to community banks in 2005. BancVue created a directory of REWARDChecking accounts www.checkingfinder.com. In 2007, "High-interest, Free Checking" became the primary focus of Capital One's annual marketing budget. As of 2008, well over 500 community financial institutions were offering "Reward Checking" or another variant of maximum balance checking.
Reward Checking accounts reward consumers in the form of high yields in exchange for performing certain monthly banking activities. These activities typically include:
- ~10 debit card transactions (non-ATM with no dollar requirements per debit card purchase)
- A direct deposit or bill pay (depending on the bank)
- Receive electronic statements (with no paper statement)
If a depositer doesn't meet the above requirements, they won't earn the high yield for that particular month. Instead they will earn a base rate which is usually under 1%. Most banks will send an email explaining the activity that a depositor failed to meet, as such they can return to earning the high yield if they meet the requirements for the next month.
Unlike many other checking and money market accounts, reward checking accounts usually lack minimum balance requirements and monthly fees. Balances up to ~$25,000 will earn the top yield, and any balances over this will earn a smaller yield. One more reward offered by most of these accounts is refunds of ATM fees charged when they use another bank's ATM.
Article source: Wikipedia, the free encyclopedia.
