How a high-yield or rewards checking account can help grow your savings

Want to join the "buy local" trend? Banks and credit unions that serve a relatively small geographic area often have higher interest rates on rewards and high-yield checking accounts. Here's how to get the local advantage.

How rewards checking accounts work

The interest rates banks pay on rewards checking or high-yield checking accounts are based in part on the bank's lending demand. The more loans requested by the bank's customers, the higher the bank's allowable yield for rewards accounts. Since lending demand is typically created by customers within the institution's geographic range, those who compare checking rates may notice better rates at banks or credit unions with a regional focus. Many rewards checking programs offer other money-saving benefits besides their high interest rate, including

• No monthly fee
• $0 minimum balance
• Refunded ATM fees

These extra perks can give rewards checking accounts at a regional bank an edge over nationally available online savings accounts, especially if you prefer a hybrid checking-savings option for your personal finances.

Rates and requirements

Banks that offer high-yield checking account rates vary may often have other requirements in order to earn that rate. Common requirements include direct deposit, online statements or online bill pay, which helps limit overhead generated by administrative costs and paper mail.

Most rewards checking programs mandate a minimum number of signed (non-PIN) debit card purchases per month, usually 10 to 12. Banks earn revenue from each signed debit transaction by charging merchants interchange fees. Favorable rewards checking account interest rates depend on favorable revenue figures for your local bank, so each signed debit transaction that involves interchange fees contributes to better rates for rewards checking customers.

High-yield checking accounts: the local advantage

Anogther advantage local banks have over national banks is customer loyalty. While rate-chasers may use an online bank for a savings account with high interest rates, they may prefer to go to their local bank or credit union when they need a car loan or mortgage.

If people who use local rewards checking accounts are borrowing money from the same institution they patronize, each person who goes local with their banking gives more strength to the loans that support high-yield interest rates.

Spread the word and get better interest rates?

Rewards checking programs at your local banks or credit unions can help your savings grow, and spreading the word about them can help those programs grow even more. Compare rewards checking rates here. Happy saving!

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