Why should you open a rewards checking account?
The goal of rewards checking account is to get you to earn the most you can for your money. Here are just a few benefits that are unique to rewards checking accounts and why you should consider opening one:
- High-interest rates (High APY): Many rewards checking accounts offer high interest rates. These rates are higher than you’d typically earn with a traditional checking account.
- No monthly fees: Many banks charge customers hefty monthly fees on their bank accounts if they don’t meet certain requirements, such as maintaining a minimum balance or making a certain number of debit transactions per month. Rewards checking accounts usually don’t have these requirements, so there’s little risk of paying any monthly fees on your account.
- No fees on ATM withdrawals: Another perk of rewards checking accounts is that they sometimes reimburse ATM fees. If you need to withdraw money from an ATM outside your bank’s network, you won’t pay any extra fees. However, this benefit doesn’t apply to all rewards checking accounts, so check with your bank before assuming that this applies in your case.
- Cashback rewards: You can earn 1% or more in cashback rewards on debit cards purchases when you meet certain requirements. At the very least, you’ll need to make a certain number of card purchases every month. You may also be required to have at least one direct deposit or automatic payment per month and receive electronic statements.
- Sign-up bonus: Sometimes a financial institution will offer a welcome bonus with cash deposited in your account after you meet certain criteria. Check with your bank on what’s required.
How do rewards checking accounts work?
These types of checking accounts offer customers an attractive sign-up bonus, a competitive interest rate, or cashback by using the debit card linked to the account. As long as you meet certain criteria, such as spending a certain amount or making a certain number of purchases each month, you’ll earn cashback.
Rewards checking accounts generally require you to perform several monthly transactions to qualify for the highest interest rate and ATM fees reimbursement. You might have to make ten or more debit card purchases per month or use your debit card at least once every three days. If you don’t meet these requirements, your account will earn a lower or no interest. Some banks offer lower rewards depending on how many transactions you make, while others exclude your account from earning any rewards for the month when you don’t meet the requirements.
Some banks require a direct deposit to your checking account to qualify for maximum interest earnings, but this is not always the case.
What do you need to open a rewards checking account?
Here’s how you can open one of these accounts and what documents you need:
- Minimum deposit: Many banks ask that you make a minimum deposit when you open your account. Some banks may ask you to set up direct deposit to waive the minimum deposit requirement.
- ID and Social Security number: You’ll have to provide personal information. You’ll typically need to present one form of government-issued photo ID, like a driver’s license or passport, and your Social Security number.
- Two forms of contact information: Banks will often ask for your phone number to reach you in case of suspicious activity or problems with your account. They may also ask for an email address, so they can contact you with updates about your account or notify you if your balance is running low.
Many banks now allow prospective customers the option of opening an account online. In these cases, banks typically request that applicants upload images or scanned copies of their identification cards and other required documents, so bank employees can review them. Once approved, you can usually access the new account immediately.
What are the common rewards checking account fees?
There are a few fees that you may want to be aware of before opening an account:
- Minimum balance fee: Many accounts charge a monthly fee if you fail to maintain the minimum balance. The minimum balance could range from $1,000 to $2,500, depending on the bank and program. If you know that you rarely carry much money in your account, find out if there’s a minimum balance requirement.
- Overdraft fee: If you overdraw your account, you may be charged an overdraft fee. Some institutions charge this fee every day until the amount is paid off. You can opt-out of overdraft protection and prevent this specific fee.
- Non-sufficient funds (NSF): If your institution doesn’t cover the cost of an item (through an overdraft), you may be charged an NSF fee. Some institutions also charge a fee if they decline to pay for an item because you’ve exceeded your limit or have already reached your monthly limit on overdrafts.
- ATM fee: If you use an out-of-network ATM, the bank that owns that ATM may charge you a fee for using it. In addition, your financial institution may also charge you. Some rewards checking accounts waive this fee, but others don’t. Be sure to check first if this is important to you.
- Paper statement fee: Most banks want to save money by sending account statements electronically and not mailing paper statements. If you want paper statements, some banks will charge you a fee. Electronic statements are free, so if cost is an issue, it’s best to accept those instead of paying for paper copies.
How to choose the best rewards checking account
Here are some things to consider when choosing a rewards checking account:
- Withdrawals: While they may be the checking account will more likely be FDIC insured, this doesn’t guarantee access to your money when you need it. It’s important to know the withdrawal policy of any account before you open it. Some have restrictions on how many withdrawals you can make each month.
- Fees: Rewards checking accounts often have no monthly fees, but some may charge for account maintenance or other services. Look for an account that doesn’t charge monthly fees or if there is a fee, make sure you can easily avoid it.
- Interest rates: If you’re going to put your money in a high-yield checking account, make sure the interest rate is competitive compared to similar accounts.
- Online banking features: Many banks allow you to view your accounts online or through an app. You should make sure that the bank’s online system offers all the tools you need to manage your finances easily. Some banks offer mobile deposits and other features that might appeal to you.
- Minimum balance requirements: Many banks require minimum opening deposits and balance requirements, which vary widely from bank to bank. Make sure you know what to expect before opening your account. If possible, choose a bank with no minimum balance requirements, so you won’t be penalized if your balance falls below a certain amount.