(Do you have any of these cards? Chances are you do, even though you may not realize.)
A reward checking account pays a higher interest rate on your balance up to a limit but it requires you to perform certain activities, such as using the debit card a minimum number of times in a month.
I had a reward checking account with a credit union some time ago. I closed it after the credit union changed the terms. After a break, I’m back at it, because I’m still buying lunch at work every day, and I want to get credit for doing what I already do.
This time I chose the reward checking account offered by Lake Michigan Credit Union (LMCU). It pays 3% interest on up to $15,000 for having direct deposit, e-statement, 10 debit card transactions, and logging in 4 times to online banking every month. I had thought logging in 4 times a month would be too much trouble to remember, but I learned Mint.com would take care of it.
Opening the account was easy. Setting up direct deposit was easy, although the account number to use is labeled cryptically as the MICR Line, which refers to the magnetic ink used to print the numbers at the bottom of checks, which I didn’t order.
A nice feature of this reward checking account is a running summary of your progress toward meeting the requirements for 3% APY this month. When I tested using the debit card for a small online purchase, I noticed it didn’t count toward the debit card usage requirement.
That was because the merchant ran it as PINless debit through a debit network. Besides the well known payment networks such as MasterCard and Visa, there are also a bunch of less known debit networks such as Star, NYCE, Pulse, and Accel. Running payments on a debit network costs less. That’s why the merchant chose to go that route as opposed to running it through MasterCard.
Lower cost to one party means lower revenue to another party. LMCU doesn’t count PINless debits toward debit card usage for earning a higher interest because LMCU earns less revenue on PINless debits.
I don’t blame LMCU as much as I blame the merchant for this situation. Most customers don’t mind which route the debits go. Those who do should get a choice. If the merchant offers a choice, most people will go with the default anyway. It’s not worth the tiny cost savings for the merchant to alienate the small percentage of customers who care about the difference. Amazon also runs debit card sales as PINless debit, but it offers an opt-out. That’s much smarter.