A 6 % on your checking account looks impossible when managing a 2-3% seems to be a difficult task right? Well, it might, but these days there are quite a number of community banks and credit card unions offering you that amount on your checking accounts. According to Randy Rosen, market researcher, Informa Research Services, reward accounts have now become very common, though they were offered by just a few companies before.
You might think why reward checking programs are gaining popularity with banks. This is because of the symbiotic benefits that can be achieved by the banks as well as the account holder in such a situation. The bank benefits doubly with people who hold reward accounts than with people who hold normal accounts. This is because people with reward accounts maintain higher bank balances than those with free checking accounts. For example, the ones with reward accounts hold a balance ranging from $3,900 to $ 13,000 whereas those with regular checking accounts might keep low balances to the tune of $750 to $ 1000.
Also the reward account holders stay with the bank for a longer period of time in comparison to those who have a free checking account. Obviously when a person deposits higher amounts of money, he would be more serious about maintaining a relationship with the bank and is a more loyal client. Hence the reward accounts give the banks double profits than the regular accounts.
Reward accounts also attract the investors to open new accounts with the bank and also buy more products and services of the bank. A large number of reward accounts can also project the reliability of a bank to prospective clients who are contemplating the opening of an account with the bank. These days, even banking biggies offer about 0.12 % on current account and 0.23 % on savings account.
A rewards account in a community bank offers you much more than that. Also rewards accounts beat the yields of Cash management and sweep accounts that are offered by brokerage companies which use cash management accounts. The brokerages these days are yielding as little as only 1% as they usually invest in market mutual funds which are subjected to market risks. Especially when the economic times are bad and uncertain, you cannot expect these broker accounts to yield more than 1 to 1.5 % on your accounts.
Reward yielding products do look good in comparison to a lot of options but they are not all that good when scanned for certain factors. Firstly, the 6 percent offer comes with a lot of conditions like debit card usage, direct deposits and signing up of electronic statements. If you don’t abide by these obligations your interest drops to as low as 0.1%. The maximum amount that can earn you a 6 % interest is limited by banks to a fixed amount, above which you get only 0.1 % interests. Most big banks don’t offer you reward checking accounts. Reward accounts are best for people with good banking schemes. The accounts should be insured.