Rewards checking can be, well, rewarding
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Racking up rewards on checking accounts can substantially boost your earnings.
FDIC-insured Northpointe Bank in Grand Rapids, Michigan, for example, offers an almost unheard of 5% annual percentage yield on balances up to $5,000. This nationally available account is among dozens featured on Bankrate.com's annual high-yield checking survey.
The trick is clearing the checking account hurdles, which can include meeting monthly minimums on the number and dollar amount of transactions, using online rather than paper statements and switching to direct deposit.
For any month in which you don't meet these requirements, you'll earn much less: a near-worthless 0.05% APY at Northpointe, for example. There's also no guarantee that rates won't drop after you open the account.
While you should check the disclosures on any rewards account to make sure monthly fees and other costs won't eat up your rewards, you shouldn't assume that these deals are too good to be true.
Rewards checking isn't a "gotcha" device, but a way for banks to encourage specific depositor behaviors, says Scott Hein, the Robert C. Brown chair in finance at Texas Tech University in Lubbock. He sees it as a win-win product for banks and their customers.
Another example: Discover Bank's rewards checking encourages depositors to use their debit card for purchases and pay bills online by rebating 10 cents for each of these transactions, up to $10 per month.
RATE SEARCH: Ready to shop now? Find a great checking account near you with the help of Bankrate.
Scoop up bank incentives
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Opening a new account? Check out bank incentives first.
For example, JPMorgan Chase offers $300 bonuses on new Premier Plus checking accounts through April 13, 2016.
The catch? You'll have to meet requirements like maintaining a minimum average daily balance of $15,000 to avoid a $25 monthly fee. You also will have to use direct deposit and keep your account open for at least 6 months. Smaller bonuses are available if you can't meet these requirements.
At Citibank, targeted credit card holders can earn 40,000 ThankYou points for opening a new checking account.
And, at Capital One, you can get a $500 bonus for opening a new savings account, but you'll need to deposit a whopping $50,000.
Less commonly, you'll find banks that offer referral bonuses. Associated Bank, for example, will give a $50 Visa gift card to existing account holders who persuade a friend or family member to open an account and use online bill pay or direct deposit. You can earn the bonus on up to 10 referrals.
Be careful about making a long-term commitment with a bank that offers a bonus. You may find that standard interest rates are pretty paltry. At Chase, for example, after you earn the bonus, the account pays just 0.01% APY.
Don't be afraid to use Internet banks
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Online banks are a good bet for higher yields. With the help of Bankrate.com, you'll find rates as high as 1.11% APY on savings and money market accounts -- far better than the near-zero rates at the nation's biggest banks.
"Look at large banks, small banks and different credit unions," says David Hryck, a partner and tax and business attorney at Reed Smith in New York City. "All of these avenues are competing for your money."
You'll find juicy rates in unexpected places. For example, Dime Savings Bank of Williamsburg in New York offers an FDIC-insured high-yield money market account that pays 1.1% APY with no monthly fees or minimum monthly balance. While you won't be able to visit a branch unless you reside near Brooklyn, Queens, Nassau or the Bronx, you can get this deal online no matter where you live as long as you have $1,000 to open the account.
A more well-known option is Ally Bank, which pays 1% APY on any balance with no monthly maintenance fee.
Don't feel that you're locked into a bank long term, Hyrck says. Open an account to take advantage of a good rate, then do your research again in 12 months. Don't be scared to jump around, he says.
Your money is perfectly safe in an Internet bank as long as it's FDIC insured. But do your due diligence on any institution you're unfamiliar with; don't get taken by a fake online bank.
Check out high-interest, low-penalty CDs
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"Generally, any money earmarked for the short-term (1 year or less) should be in a liquid position," says Gage DeYoung, CFP professional, founder of Prudent Wealthcare in Aurora, Colorado. "That being said, it is frustrating to get 0% on cash."
And today's average CD rates are indeed depressing. They range from 0.11% annually on a 3-month CD to 0.84% annually on a 5-year CD, according to Bankrate.com's most recent survey of banks and thrifts.
With interest rates starting to creep up as the Fed gradually raises its rate target, you shouldn't lock in rates this low.
Instead, look for above-average interest rates and low early withdrawal penalties.
For example, Ally Bank offers no-penalty, 11-month CDs paying 0.87% APY. There's also no minimum investment.
If you have at least $1,000, you'll get a better yield -- 1.25% APY -- with a low early withdrawal penalty of 3 months' interest on a 12- or 18-month CD from Triumph Savings Bank. It's based in Dallas, but anyone can open an FDIC-insured account online.
If you can withdraw your balance anytime without sacrificing much interest, you can move your balance to higher-paying CDs as rates climb. In the meantime, you've locked in a higher interest rate than you could have earned by keeping that money in a savings or money market account.
You could also create a short-term CD ladder to increase your returns, suggests DeYoung.
RATE SEARCH: Ready to purchase a CD? Search Bankrate.com for the top-paying certificates of deposit near you.
Don't accept a low rate
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If you're looking to earn high interest, you may have to ignore the big banks.
In fact, the big 4 banks -- Chase, Bank of America, Wells Fargo and Citibank -- offer few, if any, competitive rates on any banking product they offer.
The amount of money kept in low-yielding money market funds is staggering. But there is lots of competition for that money, which can be easily moved out of a savings account at an institution that's paying you well below the rate of inflation.
If you find a great deal on a savings or money market account, you can't just park your money and forget it. Plan to move it frequently because there's no guarantee that great rate today will remain great tomorrow.