How-To

No, I'm not selling anything or pushing any high risk investments. I'm just letting you know (if you haven't already discovered it) that there are now better places to put your money than CD's. They are typically called Rewards checking accounts and they are paying as much as 6% interest if you don't mind a bit of hassle. They are all federally insured-- the banks by FDIC and the credit unions by NCUA so you are unlikely to lose your money-- unless the U.S.A. goes bust too-- but that's another topic.

They come in two flavors: Those that are available nationwide via the internet, and the local accounts who will, typically, only allow you to open an account by physically going to the bank. If the idea of doing business with a bank over the internet gives you cold chills, chances are that you may have one or more interest bearing banks/credit unions right in your own city. But you'll still have to get your statements via computer because that's part of the deal.

Advantages of high interest checking:

Right now you have to like the higher interest, typically 4-5% as opposed to the 2.5-3% of Certificates of Deposit. Unlike CD's there is no wait to get your money out if you find a better investment opportunity. And, did I mention they are federally insured? Most have no minimum amount to open an account.

Disadvantages of high interest checking:

This is not a 'set it and forget it' option. All the banks and credit unions involved in these programs have monthly requirements which you may (or may not) find tedious and irksome. There are minor variations, but all of them seem to require the following:

1. You must view your bank statements at least once per month on the internet and you will not receive paper statements in the mail. You can opt to get statements by mail but, if you do, you will not receive the interest.

2. You must have an automatic funds transfer set up-- into or out of the bank. Some accept only automatic deposits and there may (or may not) be a minimum amount for that deposit.

3. You must make a minimum amount of debit card purchases per month. Typically, the requirement is between 10-15. Most do not have a minimum dollar amount for these purchases, however. In fact, you can do single purchases of 10 cents each, if you like.

In addition to the basic requirements there are also other limitations:

4. The maximum amount you can receive the high interest on is typically $25,000 to $30,000 at any one bank. Anything over that gets a token half a percent or so.

5. There is no interest rate guarantee so you can't depend on a particular time frame that you will receive the interest as you can with CD's.


As an example, I started an account about 7-8 months ago with a credit union who was then paying top dollar at 7%. Now it pays only 3.5 percent. Of course, I moved the money to another bank where it is now earning 5%. I used another bank that started at 6% and is now down to 5%. That one I am currently leaving in place as that seems to be the highest fairly long term interest that is being paid at the moment. You can find a few at 6% but very likely they will be down to 5% shortly.

This high interest checking fad may not last forever. I have not yet gotten a straight answer from a banker as to how they can make money on such an arrangement when they can't seem to go above 3% on long term CD's. You just know somebody is getting the shaft from this practice... but while they are offering it, I plan to take advantage of it.