How Online Banking Reward Programs Work

Online Rewards Checking: A Smart Strategy for Small Banks

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:].

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.

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  • Todorova, Alexsandra. "As Debit Cards Grow, Rewards Programs Follow." SmartMoney. December 10, 2009. (January 24, 2010)
  • Todorova, Alexsandra. "Banking Perks are Getting Better." Smart Money. May 20, 2005. (January 24, 2010)
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