How to Earn FDIC Insured Returns of 3%-4% CD-Free

reward checking accounts

Keep Your Money Safe & 100% Liquid

Let’s say that you sell your house and have $300,000 wired into your bank.  You plan on buying another house, but it won’t be built for a year or so.  You have to have that $300,000 and can’t risk losing the money under any scenario.   You could put it into an online savings account.  Online savings accounts for Synchrony Bank, Ally Bank, Incredible Bank, and GS Bank are some of the higher yielding options at 1.05 to 1.25% APY.  With $250,000 being the FDIC insurance limit, you could split your $300,000 among 2 banks just to be safe.  Another option would be to buy a 1 year CD.  Some of the higher yielding CD’s at DepositAccounts.com include Bankers Trust at 1.40% and State Bank of Texas at 1.35%.  Again you may need to split the deposit across 2 accounts, and you have the added problem of the money not being liquid.  If your house is ready 2 months early, you may not be able to pull your money out without losing some of the interest you earned.  There is another route you can take that allows your money to be 1.)  FDIC-insured, 2.) 100% liquid, and 3.) earn 2 to 3 times the interest available from CDs: Reward Checking Accounts.

How Reward Checking Accounts Work

Many banks and credit unions now offer reward checking accounts that offer a very high interest rate on a limited amount of money.  The limit is typically somewhere in the range of $5,000 and $25,000.  They use the reward checking account as bait to get you in the door, with the hopes that they will expand the relationship across several accounts.  In order to qualify for the high interest rate, they usually require you to use their debit card like a credit card for 15 transactions per month  (some have a flat amount of purchases such as $300), receive an e-statement rather than a paper statement each month, and to receive one direct deposit (they don’t all have this requirement).  The best resource to find the accounts is DepositAccounts.com.

For instance, if you put your location as Michigan and an amount of $15,000 and left everything checked with Easy Access Only (this filters out credit unions that have very narrow requirements like having to work for a specific company), you would see these results:

Bank NameMax SizeAPY
Consumers Credit Union$20,0004.59%
Kellogg Community FCU$15,0004.00%
Nicolet National Bank$15,0003.00%
SB Community FCUnone3.00%
Lake Michigan CU$15,0003.00%

 

How to Pick a Bank or Credit Union

There are a few considerations when picking which account to open.  One is the limit; I generally would not fool with a bank that caps the high interest rate offered to $5000.  You are going to have to spread your money across too many different bank accounts.  I think $15000 is the lowest cap worth fooling with.  Figure out which banks and credit unions you qualify for.  A bank in your home state may not want your business if you are not in a nearby county and credit unions have a variety of restrictions on who can join.  I would not give up easily, however.  For instance, a credit union affiliated with one employer e.g. an airline or grocery store chain, may also allow for employees of preferred employer groups to join.  Getting your own business qualified as a preferred employer group is often easier than you think.  It took me less than a month to get my own company approved for as a preferred employer for a credit union affiliated with a large transportation company.  Figure out if there are any loopholes to a particular credit union.  Sometimes you can donate a small amount of money ($5 to $25) to a particular charity, or even worship in a particular county (ask the credit union but a church bulletin might suffice), in order to qualify.

Keep in mind that you are probably going to be joining one or more banks and credit unions that don’t have branches in your local area.  Most people are OK with that, but keep this in mind if you are someone who uses branches at all.  Even if you deal with cash a lot or need cashiers checks issued quickly, you might be able to work around that by keeping at least one local branch option available and transferring money electronically between banks; just make sure you are prepared in advance.

If you have a large amount of money to place in reward checking accounts, you may want to have more than one account in the same bank or credit union.  You can have a single account, your spouse can have a single account, and you can also have a joint account.  (Some banks only allow one reward checking account per household)  It may be too complicated, but you might possibly be able to have revocable and irrevocable trust accounts that qualify as well.

How to Make Sure You Qualify for the High Interest Rate

You need to make sure you qualify for the high interest rate, or else your account may only pay out 0.25% or less and you might lose other features like free ATM refunds.  High yield checking accounts typically require e-statements, 1 direct deposit, and 15 debit card transactions where you use your debit card like a credit card.  Some have other requirements so make sure you are completely clear on what is required.  The e-statements requirement is easy; the 2 which require some form of action are receiving the direct deposit and debit card transactions.

The direct deposit can come from your employer paycheck but does not necessarily have to.  Obviously if you have 10 accounts and get paid just twice a month, you aren’t going to meet the requirements for all the accounts that way.  A lot of banks and credit unions count ACH’s from an external account to your account as a direct deposit; some others count deposits from PayPal or Dwolla to your account as a direct deposit.  The other thing you can do is set up a payroll account with an account provider like Intuit Payroll with yourself as a sole proprietor.  If they don’t charge to pay yourself multiple times, you can pay yourself as many times as you need in order to qualify.  For most banks and credit unions, even paying yourself $1 will suffice.

The 15 transaction requirement may seem daunting if you have 5 to 10 different checking accounts, but it does not have to be.  Split up purchases as much as possible.  If you go to a bar and order a round of drinks for 5 people, pay for each one separately.  Buy a $0.89 drink at Circle K with 1 transaction.  You can fill up with gas and spread out a 15 gallon fill-up with 3 gallons per card and use 5 cards.  Go online and make $1 donations to 10 different charities.  This takes a little bit of work but it is worth it.  If you have $200,000 spread across 10 accounts, the annual difference in interest between a 3% return and a 1% in an online savings account is $4000.  That is a lot of “risk-free” (FDIC insured) interest

 

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