How to Shop Banks to Get Better Yields

After months of grappling with the financial crisis and government-ordered stress tests of their health, banks are emerging from the chaos determined to win new business. On the East Coast, TD Bank treated potential customers to pizzas and Citizens Bank is promising to kick in $1,000 to families saving for college. In Oklahoma, the tiny Bank of the Wichitas started an online division with a target audience and catchy slogan: Redneck Bank, “Where bankin’s funner.”

Banks can’t afford to jeopardize their health by offering deals too far out of line with the near-zero percent interest rate target set by the Federal Reserve. That helps explain why their perks often come with strings attached. Citizens Bank will kick in that $1,000 for college savings only if you deposit at least $25 a month for a child age 6 or under until he or she is 18—at a recent interest rate of just 3 to .5 percent. HSBC recently gave away Amazon Kindle 2 portable book readers, but only to customers depositing $50,000 in a new account and keeping a combined balance of $100,000.

Still, some banks are willing to pay decent interest rates to grab new customers—you just have to play detective to find them. Making sense of it all, whether it’s the fine print in a giveaway or the best yield on a savings account, can be daunting. Here’s a guide to sorting it out.

Bank of the Wichitas has just four branches, all of them in Oklahoma. But thousands of folks outside the Sooner State have flocked to its Redneck Bank online unit. “Our target market is people with a sense of humor,” says Wade Huckabay, a bank director and third-generation banker who came up with the name.

Bank of the Wichitas is a hit for more than its unconventional online bank. It’s one of hundreds of small banks and credit unions with “rewards” checking accounts yielding 4 percent or more. Those kinds of rates are often double the national average, and they’re not just “teaser rates.” Most of the banks offering these rates have maintained them for over a year, says Gabriel Krajicek, CEO of BancVue, a firm that runs rewards-checking programs for community banks around the country.

Small banks have been losing market share to large banks for years, so offering high rates is one obvious way to pull in new customers who might step up and buy other services. But the deals come with a catch: The banks generally require account holders to make at least 10 debit-card transactions in a billing cycle, receive statements electronically and sign up for direct deposit or automatic bill payments. People with large nest eggs will find that small banks live up to their names in another way: They often cap the amount that can earn the high yield at $25,000 to $50,000. (It’s $10,000 at Bank of the Wichitas.)

Bankers also count on customers who flub up—not making enough debit charges to qualify for the bonus rate. At Southern Bank in Missouri, about 80 percent of account holders make their quotas to qualify for the high yield (currently 5 percent), says Matt Funke, chief financial officer. The rest earn .1 percent no matter how much they have on deposit, helping to make the accounts overall “quite profitable” for the bank, Funke says.

Tip: The site HighYieldCheckingDeals.com lists top rates nationwide. To get around limits on the amount of money that can earn top rates, some customers distribute their funds to different banks.