by Broderick Perkins
(7/6/2011) As the old hackneyed phrase goes, you've got to spend money to make money.
No where is that more true than in special checking accounts that are proving to be a haven for consumers looking for returns as much as 4 percentage points higher than you can get with traditional checking.
With interest rates on these so-called "high-yield" or "rewards" checking accounts averaging more than 2.5 percent and some as high as 4 to 6 percent, the accounts easily beat regular checking and savings accounts and can even do better than certificates of deposits (CDs) and money market accounts.
Offered by smaller banks and credit unions where overhead and risks are smaller than larger banks, high yield checking accounts have seen deposits jump from $100 million in 2005 to nearly $18 billion by June this year, according to BancVue.
The special checking accounts work pretty much like any checking account, but in exchange for the high rates, you'll have to navigate firm, extensive terms that come with the accounts.
Read the small print
Financial experts say the accounts are a better deal if your current checking account habits are already a match for the terms of a high-yield account. Changing your habits just to meet the terms could cause over-spending and wipe out any gains the account would otherwise provide.
Here's where spending money to make money comes in.
• Debit card transactions. Virtually all high-interest checking comes with a frequent-debit-card-transaction requirement. On average, you'll have to make 10 or more point-of-sale debit card transactions a month. All types of checking accounts these days typically come with a debit card you use like a credit card to make transactions. Unlike a credit card, which taps a line of credit, the debit card deducts the amount from your checking account to make the transaction.
• Maximum balances. High-interest checking accounts typically come with a balance cap which limits how much can earn a higher yield. The higher the allowed balanced, the smaller the return. For example, in a recent BankRate survey, Seattle-based Boeing Employees Credit Union offered a 6.17 percent interest rate, but only on a $500 maximum balance. On the other hand, North Country Savings Bank, in upstate New York allowed a $50,000 balance, but only at a 1.75 percent interest rate.
• Really small print. Failure to meet what can be a host of other requirements can immediately drop the interest rate to traditional checking account interest, and trigger fees.
For example, at Consumers Credit Union in Illinois, the 4.09 percent interest rate comes with a balance cap of $10,000 and a required 12 debit card transactions per month -- for starters.
You must also open a savings account with a minimum $10 balance and enroll in online banking and electronic statements. Each month you must also make at least one direct deposit or one automatic clearinghouse debit or pay one bill using the credit union's online bill payment system.
Fail to stick with the requirements and your Consumers Credit Union