How Online Banking Reward Programs Work

Enrolling in an online banking rewards program is easy. Start by meeting the bank's minimum requirements for an online checking account. Then, visit the bank's Web site and look for online enrollment in its rewards program, find a toll-free number to call or visit a branch office.

Once enrolled, you can start earning points right away for everyday purchases. If you have a credit or debit card associated with the account, be sure to ask if you can link the accounts to earn points faster. Some banks offer double points for debit card or recurring purchases, or triple points for purchases made with a credit card.

You may earn even more points for purchases made through a network of merchants, such as Citizens' Bank's Merchant Network or Wachovia's Earn More Mall. These networks include popular retailers like Gap, Best Buy, Office Depot and more. Once you register, you can access these websites through a customized portal, and your purchases will help you accumulate rewards points faster.

Checking your points and redeeming them is as easy as logging into your reward account. You'll be able to see how many points you have available, then browse through an online catalog of rewards and redeem points to claim. For example, if you have 5,500 points, you can redeem points for a $50 gift certificate to Pottery Barn -- or you may choose to save your points and accumulate more to use toward a family cruise.

Some online banking programs may offer "premium" rewards, or awards from luxury retailers or travel partners, or even offer a chance to earn points at a higher rate. A fee may be associated with these types of account, so be sure that your monthly spend and the reward points you may earn justifies the additional fee. If you have to spend significantly more to justify the fee, you should stick to a program that comes free of charge.

Online banking makes smaller banks accessible to anyone with an Internet connection, whether they are located in Jasper, Ga., or Scottsdale, Ariz. Some small and community banks are now offering rates as high as 6 percent to attract new online customers and larger deposits.

This type of online banking rewards account usually requires one or more of the following: a minimum opening balance, a monthly direct deposit, monthly online bill payment, a minimum number of online transactions per month, debit or credit card usage, and a willingness to switch to electronic monthly statements instead of paper [source: MoneyRates.com].

Rewards checking accounts benefit both banks and customers. Rewards account holders are twice as profitable to banks as those with regular free checking accounts because they keep higher balances and maintain the account longer, according to BancVue, a company that helps small and community banks set up rewards accounts. Customers can earn much higher yields than when compared to conventional interest-earning checking accounts offered by larger banks [source: SmartMoney].

Banks are also able to make more money on these accounts because customers are required to sign up for direct deposit or electronic statements, helping to save on administrative costs.

To avoid having to pay out too much in interest, there's often a limit to the amount that earns the higher rate of interest: Usually, the limit is $25,000, but some banks will pay the higher interest on deposits of up to $70,000 [Source: SmartMoney].

Rewards checking accounts are a good idea only if your banking habits fit the requirements of the program. If you regularly make 10 to 12 debit card purchases, schedule direct deposits, or maintain a minimum balance, an online rewards account might work for you. Make sure the Federal Deposit Insurance Corporation (FDIC), which covers up to $250,000 for individual accounts, insures your deposits.

Whether you choose a points-based program or one with higher interest rates, online banking rewards programs help you earn a positive return on your hard-earned cash. And who knows, you might even earn enough points to redeem for that camera you've had your eye on or a fabulous family vacation.