2010: A Rewards Checking Odyssey

Will 2010 be the year of the rewards checking account? The crystal ball says yes, especially as the gap between banks savings rate and rewards checking rates widens. BankingMyWay.com details the biggest reasons why 2010 could be the year of the rewards checking account.

It used to be that getting 3%, 4% or even 5% on your bank savings accounts wasn’t a big deal. That was the case back in the spring of 2006, when many banks — especially online banks — were paying out 5% on their traditional savings accounts.

But with the Great Recession came great reductions in bank account interest rates. Big reductions. This week, the BankingMyWay Weekly Savings Rate Tracker pegs the average U.S. bank savings account rate at 0.22%. Interest checking (at 0.14%) and money market accounts (0.39%) are barely on life support, as well.

That’s where rewards checking enters the picture. In return for making a minimum number of debit card transactions and for making some payments online, more banks are issuing higher rate reward checking accounts to customers — up to 4% APY in many cases.

Banks aren’t in the rewards business for altruistic reasons. According to BancVue, an Austin, Texas-based rewards account servicer, rewards account holders are twice as profitable to banks than customers who use traditional banks checking accounts. BancVue says that rewards customers hold higher balances (up to $13,000 compared to $1,600 for the average traditional checking account customer), and they also deliver higher profits to banks ($450 per customer compared to $200 per customer on an annual basis.)

As long as rates on traditional bank savings and checking accounts remain low, expect more bank consumers to bite on high-yield rewards checking accounts in 2010. The math alone tells the story.

Let’s say you have $25,000 you want to deposit into an interest-accruing bank account. If you only get 1% (and that’s high these days) for a regular bank checking account), you’d earn $250 in interest accrued for the year.