Rewards Checking Accounts Still Paying Over 6%

The latest 75 basis point Fed Funds rate cut has dire implications for online savings accounts and money market funds, which tend to closely track movements in the Fed Funds rate.  As of March 18, online savings accounts at ING Direct and Emmigrant Direct, two of the most popular options, yield a paltry 3.1% and 3.3%, respectively.  With the official inflation rate above 4%, what’s a saver to do?

All is not lost.  I came across this article on Yahoo Finance about how many small banks and credit unions are offering unbelievably high rates on checking accounts to attract business.  Some of these banks are offering accounts with staggering yields of over 6%.  How do they do it?  Well, it turns out there are a few caveats.  All of these accounts come with various restrictions, some of them quite significant.  For instance, many require you to make a minimum number of debit card transactions every month (which generate revenue for the bank) and practically all require you to do all of your banking electronically to save overhead costs for the bank.  Furthermore, most small banks have a limited number of ATMs, so you could easily find yourself completely wiping out your interest earnings with ATM fees if you’re not careful.

Most small banks only take deposits from in-state customers, so you’ll have to shop around; however, there area  few that offer their accounts nationally.  And if you do all your banking online, it’s not a big deal anyway.  To find these deals, check out the Banks Rewards Programs section over at money-rates.com.  In a falling interest rate environment, this may be your best bet.