High Interest Checking I Can Live Without

Last Updated Mar 19, 2010 1:14 PM EDT

No two ways about it, high paying money market and checking accounts are great. I've written before about stashing my cash at Alliant Credit Union in a savings account earning 2.00 percent APY. An even higher rate that I've found is the eVangtage checking account at Minnco Credit Union, currently paying a whopping 4.10 percent APY, or more than twice the amount. They are absolutely legitimate, so why don't I bite?

The account
The account pays this high interest on amounts only up to $30,000. To earn this high rate, one must meet three simple qualifications - make direct deposits, make at least 12 Visa debit card purchases per month, and take electronic delivery of statements. Not a problem.

The extra cash
Say I could keep my magic balance at $30,000 for the entire year. This would earn me $1,230 in interest versus the $600 I'm making in my savings account. Thus, I get an extra $630 which, after taxes, would equate to about $425. Not too shabby.

What I give up
Now to do this, I'd have to use their Debit Visa card which means I'd use my Fidelity American Express Credit card far less. I spend roughly $30,000 per year on this card which, at a two percent cash rebate, gives me $600 annually. And since it's a discount on my purchases, it's not taxed. So I'll earn more staying where I am without any time and effort spent keeping the account exactly at $30,000.

What's really going on here?
These high paying checking accounts are legitimate, but they are cross-subsidizing one product (checking) with another (debit card). It's a similar strategy as Hewlett Packard, which many people think is in the printer business. They are actually in the ink business as they often sell printers below cost to generate sales for their ink cartridges.

You can have both
I do know people who use these accounts and very carefully make twelve debit card charges per month, totaling less than $100. This is great if you have that kind of time. Though I regard myself as one of the cheapest (though I prefer the term value-oriented) people on the planet, even I don't have time to manage this.

My advice
As I said, these checking accounts with low maximums and high interest rates are great. Just be sure you are not giving up more in one area to get that higher interest rate. The world is full of cross-subsidizations, and this is just one more example. Do you really think your new cell phone was free? Frame the business offer with the larger picture in mind.


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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.