Earn 5% With Your Debit Card

May 31, 2010 - PRLog -- If you get any interest at all on your bank accounts, the rate is probably pathetic. The average interest rate paid on savings is well under 1%, according to Bankrate.com, and yields on certificates of deposit aren't much higher.

But some people are making up to 5% at federally insured banks and credit unions. They've discovered "rewards checking" can supercharge returns on their cash.

Find the best rewards checking accounts:

Let's be clear right upfront: Rewards checking isn't for everyone. In fact, it's probably not a good fit for most people, because you have to jump through a few hoops, such as:

•Making 10 to 12 debit card transactions a month.

•Accepting electronic rather than paper statements.

•Setting up direct deposit or at least one monthly automatic payment.

•Logging on your account online.

But for the right kind of saver -- one with a substantial amount of cash who's motivated, detail-oriented and comfortable online -- rewards checking can be a boon.

A 5% rate on $25,000 can bring in $1,250 a year.

Are there any gotchas?

Blogger and author J.D. Roth of Get Rich Slowly said many of his readers are big fans of their rewards checking accounts.

"They're willing to do a little extra work every month to be sure they qualify for the rewards rate, because they know the payoff is worth it. But then, GRS readers love to micromanage their finances," said Roth, the author of "Your Money: The Missing Manual." "I tried to use one myself but found I couldn't keep up with the minimum number of transactions."

If you fail to meet the requirements in a given month, you don't get the higher rate but instead earn a default rate that's typically a fraction of 1%. Also, you may not be able to find a 5% rate or even 4%, because financial institutions may accept only local customers or those from a defined geographic area. Web sites such as CheckingFinder and MoneyRates can help you find an eligible account, and Bankrate.com just released its 2010 study of high-yield accounts.

There are other limits to the institutions' generosity. The advertised rate typically applies to the first $20,000 to $25,000 you deposit. At HCSB in Hart, Texas, for example, a 3.51% rate applies to the first $25,000 deposited while anything over that amount earns 1.51%.

And rates can change. Yields that averaged 5% to 6% a few years ago are now down to 2% to 3%, said Gabe Krajicek, the CEO of BancVue, an Austin, Texas, consulting company that markets rewards-checking programs to banks and credit unions.

Why rewards checking pays, for banks and you. If you don't keep a lot of money in your account, the effort may not be worth the reward. A 5% rate on a balance of $1,000 would earn you less than $5 a month, and all those required transactions can boost your risk of overdrafts. The resulting fees could wipe out any interest and then some.

It's when you can keep $5,000 or $10,000 or more on deposit that rewards checking really starts to shine. Also, the accounts typically don't have minimum balance requirements or monthly fees, and many reimburse ATM fees up to a certain dollar amount, typically $20 to $25. By Liz Pulliam Weston, MSN Money.

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other sources: www.goarticles.com/article/Age-60-And-Planning-Retirement/2567126/