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Rewards checking can be ... rewarding
Racking up rewards on checking accounts can boost your earnings.
FDIC-insured Northpointe Bank in Grand Rapids, Michigan, for example, offers an almost unheard of 5 percent 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 meeting the account requirements, which can include monthly minimums on the number and dollar amount of transactions, using online rather than paper statements and having direct deposit.
For any month in which you don't meet these requirements, you'll earn a near-worthless 0.05 percent APY at Northpointe, for example. There's also no guarantee that rates won't drop after you open the account.
You should check the disclosures on any rewards account to make sure monthly fees and other costs won't eat up your rewards, but don't assume that these deals are too good to be true.
Rewards checking isn't a "gotcha" technique, 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.
RATE SEARCH: Ready to shop now? Find a great checking account near you with the help of Bankrate.
Go for bank incentives
Opening a new account? Check out bank incentives, such as cash bonuses.
But you'll have to meet requirements, such as maintaining a minimum balance to avoid a monthly fee, using direct deposit and keeping the account open for a certain length of time.
Less commonly, you'll find banks that offer referral bonuses. But be careful about making a long-term commitment with a bank that offers a bonus. You may find that standard interest rates are puny.
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Don't fear internet banks
Online banks are a good bet for higher yields. With the help of Bankrate.com, you'll find rates as high as 1.11 percent 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 percent 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 percent 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.
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Check out high-interest, low-penalty CDs
"Generally, any money earmarked for the short-term (one year or less) should be in a liquid position," says Gage DeYoung, a certified financial planner and founder of Prudent Wealthcare in the Denver area. "That being said, it is frustrating to get zero percent on cash."
And today's average CD rates are indeed depressing. They range from 0.13 percent annually on a 3-month CD to 0.81 percent annually on a 5-year CD, according to Bankrate.com's latest survey of banks and thrifts.
With the possibility of the Fed raising interest rates before the end of this year, 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 percent APY.
If you have at least $1,000, you'll get a better yield -- 1.3 percent APY -- on a one-year 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.
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Don't accept a low rate
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.
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 certainty that great rate today will be great tomorrow.