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What Is a Rewards Checking Account?

March 28, 2016 Banking
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If finding a free checking account is like spotting a rare bird, then landing on a rewards checking account — one in which the benefits don’t come at too great a cost — is like discovering Sasquatch. Except that such accounts actually exist.

These premium accounts might earn interest and waive ATM fees, but many carry high monthly fees — think $20 or more — unless customers keep their accounts padded with an almost comically high balance.

Still, finding a rewards checking account that doesn’t have steep fees and requirements is possible. Here’s a look at how to qualify for one of these accounts (and whether you should want to).

The basics

Rewards checking accounts often come with excellent perks, such as:

  • One-time sign-up bonuses between $50 and $200
  • High annual percentage yields (often 1% or higher)
  • Reimbursements for ATM surcharges
  • Airline miles
  • Cash back

Many times, the highest APYs are tied to balances at either end of the spectrum: the really low (up to $500) or the really high (over $25,000). Know the requirements involved, including what it takes to waive the monthly fee, in order to get the best deal.

How to qualify for rewards checking

Although the criteria to receive these benefits vary by account, generally there are a few requirements you’ll be asked to meet:

  • Make 10 to 15 debit card transactions each month.
  • Have at least one direct deposit or one ACH automatic withdrawal clear your account each month.
  • Use self-service options, such as electronic statements, online banking, ATM deposits or online bill pay at least once each month.

You may be asked to fulfill all of these requirements, some combination of the three, or different ones altogether (keeping a minimum balance is another popular one). It depends on the account. Check to see what those requirements are, and ask whether you could meet them on a regular basis.

» MORE: What is a checking account?

Is a rewards checking account worth it?

If an account truly is free, there isn’t much downside to choosing one that offers rewards as well. Even if you don’t qualify for any of the add-ons, you’ll still be left with a free account. That’s a win in and of itself.

Problems arise, though, if you find yourself straining to meet the monthly requirements to have fees waived. For example, by forcing more debit card transactions than usual, you may end up overstepping your budget and triggering an overdraft. In that case, the interest you’ve earned won’t make up for excessive spending and fees.

Next steps

Don’t let flashy rewards lure you into signing up for an account that could do more harm than good. That said, there’s nothing wrong with having rewards sway your decision if you’ve narrowed down your search to two accounts that suit your needs. If that’s the case, then by all means go for the one that does more than just store your money.

Tony Armstrong is a staff writer at NerdWallet, a personal finance website. Email: tony@nerdwallet.com. Twitter: @tonystrongarm.

This post has been updated. It was originally published Oct. 18, 2012.


Image via iStock.

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