Yes, You Can Earn 4% in a Checking Account
July 21, 2011“What checking account pays 4%?” asked my colleague incredulously. I had just done a practice run through of a workshop on basic money management skills and had mentioned that there were rewards checking accounts that paid interest rates as high as that. No, this wasn’t five years ago. This was less than a year ago and they’re still paying that much even while the average savings account is paying less than half a percent.
So what’s the catch? Yes, they are FDIC or NCUA (the credit union version of FDIC) insured. No, they don’t generally charge maintenance fees or require high balances. No, you don’t have to be someone special to open an account. The catch is that you’ll likely have to be comfortable with banking from a distance and using your debit card 10 – 15 times a month. In exchange, you’ll earn higher interest rates than most CDs while still having full and instant access to your money, often through free access to any ATM in the country. There’s also a limit on how much of your balance will earn the high rate that’s usually between $10-25k (there are better places to put higher sums of money anyway but that’s another blog post).
The reason most people have to bank remotely is that they are all offered by small community banks and credit unions. You can see them at sites like depositrates.com and moneyrates.com. If you’re fortunate to happen to live near one of them this won’t be an issue. But for those of us who don’t live near Waukegan, IL or “select Michigan counties,” you’ll have to forever give up the experience of rushing to the bank during inconvenient banking hours to wait in line so someone can pitch you a product while trying to help you with your money. Instead, you’ll have to join the 21st century world of online banking.
Here’s how it works in my case. Like most people, I have my paychecks direct deposited into my checking account. When I want to deposit additional checks, I simply mail them in. When I need cash, I can go to any ATM and I get the fee reimbursed. I can do most things I need to do like check my balance, pay bills, and transfer money on the Web site. For anything else, I just call in. Since these are small community institutions, the customer service is usually quite good and I often speak to the same people. I have yet to have a problem that had to be resolved in person (knock on wood).
The only trick is that I have to make 12 debit card transactions a month. That’s easy for me since I just use my debit card for all my “everyday” purchases like groceries, eating out, haircuts, and movies (I purchase gas with a credit card for extra reward points but that’s also another blog post). Since these are small purchases, I don’t give up much in terms of credit card reward points. I also wouldn’t benefit from other credit card perks like extended warranties (come to think of it, that would be quite nice considering some of the movies I’ve seen lately). The only other requirements are direct deposit and electronic statements (one less tree part to toss in the shredder).
I’ve been doing remote banking like this for about 14 years now and haven’t had a problem. That being said, it’s not for everyone. Some people really want to be able to walk into their bank and for others, changing their checking account is just too much of a hassle. That’s okay. Just know that yes, you can earn 4% in a checking account.