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Is a Rewards Checking Account Right for Me?

By Timothy Moore · June 14, 2022 · 6 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Is a Rewards Checking Account Right for Me?

Many customers are drawn to rewards checking accounts, which offer bank members an incentive for opening and fully utilizing an account with that financial institution. Customers can typically earn their reward as cash back, redeemable points, or airline miles. Alternatively, some rewards checking accounts offer a high interest rate on funds in the account, typically at least 1.00%.

Rewards checking accounts might also offer ATM fee reimbursement or one-time signup bonuses. Some rewards checking accounts offer a combination of these perks. But always read the fine print: Sometimes these accounts may also include fees or minimum balance requirements that can make them less appealing.

Below, we’ll examine rewards checking accounts in detail, including:

•   What is a rewards checking account?

•   How do rewards checking accounts work?

•   Who qualifies for a rewards checking account?

•   What are the pros and cons of reward checking accounts?

What Is a Rewards Checking Account?

Simply put, a rewards checking account is one that rewards members for opening and using the account. Those perks and bonuses can take a variety of forms.

A standard, no-frills checking account typically has no monthly fees, minimum balance requirements, or minimum opening deposits. However, the amenities are generally equally basic: a nominal APY (Annual Percentage Yield), if any no ATM surcharge reimbursements, and often no signup bonus. According to the Federal Deposit Insurance Corporation (or the FDIC, the agency that helps maintain bank stability) the average checking account boasts a mere 0.03% interest rate.

Such a standard checking account can be attractive for some, but those seeking to earn money for their banking loyalty might prefer a rewards checking account instead.

Though the specific perks vary by account, you can typically find a rewards account that offers a high interest rate or cash back.

Recommended: APY vs. Interest Rate: What’s the Difference?

How Does a Rewards Checking Account Work?

Some rewards checking accounts have criteria for earning the rewards each month. For instance, a bank may require you to:

•   Use your debit card for a minimum number of transactions each month

•   Maintain an average minimum account balance

•   Receive a set number of direct deposits equal to a specified value

•   Enroll in services like e-statements or online bill pay.

If the reward is a high APY, you will likely earn that in the form of monthly interest on your bank’s payment schedule, deposited directly into the account. If the reward is cash back, the bank may offer multiple ways to redeem the cash within the mobile app. Similar to cashback credit cards, you can often convert points into airline miles or other perks — or just receive cash in your account.

Perks of a Rewards Checking Account

The perks of a rewards checking account will vary by bank but might include:

•   Cash back: This is usually expressed as a percentage of the transactions made with a debit card; this might also be structured as points or even airline miles.

•   High interest: Typically a 1.00% or more APY.

•   Signup bonus: A one-time bonus for signing up for a new account and meeting specific criteria.

•   ATM fee reimbursements: Refunds for expenses incurred for using out-of-network ATMs.

Some rewards checking accounts may offer a combination of these perks.

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Who Should Use a Rewards Checking Account?

A rewards checking account can be a good option if you regularly use your debit card for purchases and keep a substantial amount of money in your checking account. If you do not have a rewards credit card, a rewards checking account can serve as an alternative way to earn money for spending money.

As mentioned, some banks have special requirements for members to earn rewards. Read terms and conditions carefully. If you cannot meet account requirements for the reward, the account might not be right for you, especially if there are monthly maintenance fees.

How to Qualify for a Rewards Checking Account

Qualifying for a rewards checking account may vary depending on the bank, but, as mentioned above, there tend to be common core requirements for earning rewards, such as:

•   A minimum number of debit card transactions in a month.

•   An average daily minimum account balance.

•   A minimum number (or value) of monthly direct deposits.

If an account comes with a signup bonus, the bank likely has a set of requirements you’ll need to meet to snag that cash. This may include enrolling in direct deposit to get you started. When considering a rewards checking account, it’s wise to read the fine print before opening to ensure you fully understand the requirements.

Pros of Rewards Checking Accounts

Here are some of the benefits of a rewards checking account, though perks will vary by program:

•   Earning potential: Whether through a higher-than-average APY or through cash back on debit card purchases, the main draw of a rewards checking account is often earning money (or more money) for doing the banking you would have done anyway.

•   Tax implications: In general, the IRS sees cash back as a rebate for or discount on something you purchased, so you won’t have to pay taxes on that money. Not a bad deal at all! However, if the reward for the account is a high interest rate or a signup bonus, you should expect to receive an IRS Form 1099 from your bank for that income.

•   Fees: Some rewards checking accounts charge monthly fees (some of which might be waivable), but other rewards checking accounts are noteworthy for being fee-free.

Recommended: Pros of No Interest Credit Cards

Cons of Rewards Checking Accounts

Depending on the individual and their financial style and goals, there may be some downsides to a rewards checking account:

•   Limits on rewards: Some bank programs cap the rewards at a set amount each month, meaning there could be a limit to the amount of cash back you can earn.

•   Better rewards elsewhere: Rewards credit cards may offer more cash back than a rewards checking account. However, these cards often have credit score requirements that make it more difficult to qualify. You probably need a credit score in the 700s, and the higher, the better!

•   Minimum balance requirements: Some banks have minimum balance requirements to earn the reward. If you cannot meet the requirement or do not wish to keep that much money in a checking account, the account might not be the right fit.

•   Fees: While some rewards checking accounts have no fees, others do charge monthly maintenance fees that can make the rewards less attractive or possibly even negate them.

Is a Rewards Checking Account Worth It?

A rewards checking account with cash back can be a good fit if the conditions to earn the perks are no problem for you. You might have to get in the habit of swiping your debit card for everyday purchases. If this doesn’t faze you, then a rewards checking account with cash back might be worth it.

Likewise, if you like to keep a large sum of funds in your checking account to cover automatic bill payments, you might enjoy the earning potential provided by a high-interest checking account even if it has a higher-than-usual balance requirement.

The Takeaway

Rewards checking accounts are checking accounts that offer special incentives to members, such as cash back on debit card purchases, high interest rates, or ATM fee reimbursements. If you regularly swipe your debit card or keep a large amount of money in your checking account, a rewards checking credit card might be an easy way to earn extra money each month without changing your typical behavior. These perks can be good ways to help your money earn more money plus other bonuses.

When comparing rewards accounts, consider opening a high yield bank account. Our Checking and Savings offers an excellent 1.25% APY (that’s 41 times the national checking account average) with direct deposit, and no account fees. You can also get up to 15% cash back at local establishments when you pay with your SoFi debit card.

Help your money grow faster with SoFi.

FAQ

What are rewards in banking?

Rewards in banking refer to incentives and perks that account holders receive. They might be a signup bonus for a new account, a higher-than-average interest rate, or cash back in the terms of points, miles, or actual cash that can be deposited into your account or, for a credit card, applied toward your statement.

Why do banks offer points or rewards?

Banks offer points or rewards to entice consumers to choose their accounts or cards over competitors. Once you become a member, rewards ensure you continue to engage with the bank’s product, either by depositing more funds into your account or using your debit or credit card for more daily purchases.

Are bank rewards interest?

Bank rewards can come in the form of higher interest. For example, the national average APY for a checking account is just 0.03%, while rewards checking accounts may offer a higher than average interest rate, often 1% or higher. The interest that you earn is taxable, while cash back typically is not (it’s considered a rebate).


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 1.25% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 0.70% APY on all account balances in their Checking and Savings accounts (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.25% APY is current as of 4/5/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Photo credit: iStock/Feodora Chiosea
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