Rewards checking -- still a bright spot for banking customers

Though it seems bankers are doing everything but adding a black cape and a twirling mustache to their wardrobes these days, and bank fees continue to be as insane as usual, not everything about your local bank is necessarily bad. Rewards checking accounts are still one of the few bright spots around.

Rewards checking accounts are accounts offered by banks and some credit unions on which you can earn money if you use your debit card in conjunction with the account. The standard is usually 3% to 4% of the monthly average of whatever's in your bank account. It's that simple.

Well, it's not that simple. Most of these programs have a few requirements you have to meet before you can earn any money. For one thing, you have to use your debit card at least a dozen times a month; you also have to have direct deposit and agree to get rid of your paper billing statements (and just have the statements emailed to you). If you follow the rules, you get money back and are often reimbursed for your ATM fees, too.

What is simple is understanding why banks would want to encourage you to use your debit card. Every time you run your debit card through one of those machines at the register, the bank gets some of the interchange fee that the store pays to Visa or MasterCard. And obviously, if your statement is emailed to rather than mailed, the bank is saving money on paper and postage, too.

The downside for you
Of course, not all rewards checking accounts are as good as they sound or easy to use. For instance, I have a rewards checking account at a giant bank (which shall remain nameless), and since the fall of 2007, by using this rewards account, I've compiled a grand total of $1.66.

Try not to be jealous.

My $1.66 windfall came about because the gas station we often fill up at is a rewards partner of our bank. So every time we get gas, a few cents are kicked back to our rewards account. To be fair, if I were more aggressive about online shopping and made purchases through my bank's website, I could have earned more. But even with more shopping on my part, the rewards I'd be getting from this bank wouldn't be all that great.

That's one of the reasons I've been thinking I should leave my big bank for a smaller but friendlier community bank. Because it's at the community banks and credit unions where the checking rewards programs really shine.

Crescent State Bank, for instance, which has locations throughout North Carolina, has a very solid Rewards Checking program. If you keep an amount between one cent and $25,000 in your checking account, you can earn 5.01% APY on your balance and 1.01% APY on balances over $25,000.

Yes, you read that right. The interest goes down after $25,000 -- and not just at Crescent, but at just about any bank out there. I suspect you're offered less of a deal if you keep a higher balance in your account because your bank would most likely prefer you to put your money into a savings account or one of the many other financial tools that they provide.

At Crescent, there's no monthly service charge, so participating in the program is free, and the bank even refunds ATM fees nationwide "if qualifications are met." Some of these qualifications involve doing such things as giving up writing paper checks and receiving paper statements.

As Mike Carlton, president and CEO of Crescent State Bank, told me, "When customers use free services such as online banking, and emailed statements and debit cards instead of checks, this has a huge impact on the bank. The high interest rate is really just the bank passing that savings onto the customer." And 5.01% these days is really pretty high.

Don't live in North Carolina? Fear not. Try using CheckingFinder.com, a search engine loaded with approximately 700 community banks and credit unions around the country that helps you locate free, high-interest checking accounts. To test it out, I popped my ZIP code into the search engine and found quite a few checking rewards programs at banks in my area. Nothing with interest rates quite as high as Crescent State Bank, but plenty in the 3% to 4% range.

So if you've been grumbling about your bank, and especially if you're considering leaving, you might want to first determine if it has a good rewards checking program. The good ones give you money back for doing nothing more than keeping money in your checking account and using your debit card, which you probably do anyway. The bad ones give you about $1.66 over the course of two years.

Geoff Williams is a frequent contributor to WalletPop, often writing about consumer banking. He is also the co-author of the new book Living Well with Bad Credit.