Nothing in life is perfect. That means with every choice you make, there are going to be pros and cons to each option you’re looking at. This is true when you’re trying to buy a home, apply to jobs and get a checking account.
With the latter, you have two options: get a basic checking account or get a rewards checking account.
Basic Checking Account vs. Rewards Checking Account
We all know what a basic checking account entails. With this account, you use checks and a debit card to withdraw money, you have access to ATMs and online banking and the FDIC insures most checking accounts. The only downside with regular checking accounts is fees, i.e. monthly fees, overdraft fees and some ATM withdrawal fees, as well as maintaining a minimum balance.
The biggest perk with having a rewards checking account is the higher interest rates you can earn. All have higher annual percentage yields than savings accounts, and typically fall between 1-3%. Other common pros include receiving a one-time sign-up bonus, getting reimbursed for ATM fees, not charging monthly fees and not having a required minimum balance. Some even offer cash back and airline miles. There are some rewards checking accounts that charge monthly fees, but the nice thing is, even with the financial institutions that charge, they also tend to waive the monthly fee as long as you meet their monthly requirements.
As far as the cons of rewards checking accounts, there’s a balance cap to what you can earn a high interest rate for, usually between $500 and $25,000. And if your balance is higher, then you only earn a limited interest rate. Another negative to some people is that you have to meet certain requirements to qualify for this type of account’s benefits, which we get into below.
For most banks and credit unions, there are three requirements you have to meet to have a rewards checking account:
- Make 10-15 debit card transactions per month.
- Have at minimum one direct deposit to or an ACH automatic withdrawal from your account every month.
- Utilize self-service options, i.e. online banking, online bill pay, etc., once a month.
Financial institutions choose these qualifications because debit card purchases make them money from merchants paying interchange fees and electronic service options save the bank money by reducing their expenses from teller wages, checking processing and stamps.
Making the Decision
That’s an answer only you can make. But if an account really is free to have, the higher interest rates and other pros outweigh the cons and if complying with the monthly requirements doesn’t affect your normal spending habits, then a rewards checking account is likely right for you.