My bank is encouraging interesting spending habits

So, my bank this week launched a new checking account product, where as long as you (1) get e-statements, (2) get a direct deposit or withdrawal at least once a month, and (3) use your debit card at least 10 times in a month, you get a phenomenal 6% APY on the checking account. (If you don’t meet the requirements, you get a reasonable-nowadays 0.5% APY for that month.) The first two requirements I already meet, of course. Meeting that last one will require some effort, because currently I use my credit card for all my day-to-day purchases (and several automatic recurring bills) due to its nice cash back program. However, being able to have my main savings in my main checking account simplies my finance tracking, and I think if I use the debit card on small purchases and the credit card on large purchases I’ll end up earning more than I am now, if only slightly.

The really interesting thing to me, though, is that it purely counts the number of transactions, without paying any attention to the dollar amount. Thus it encourages me to do tricks like pump my gas a third of a tank at a time, stopping the pump and then restarting it by swiping my card each time, to artificially bump up my transaction count. In theory I could just meet my quota by pumping a dollar’s worth of gas 10 times, and then using my credit card like I always have been.

7 thoughts on “My bank is encouraging interesting spending habits

  1. I don’t get charged any fees for anything. I wouldn’t ever use a system that charged me for getting access to my own money.

    As to why they want me to use the debit card more, I’m guessing that they’re getting a cut of the merchant fees. That’s the only explanation I can think of.

  2. The balance over $50,000 only earns 2%. I wasn’t terribly worried about that part.

    Also, I don’t know how long they’re going to leave the rate like that.

  3. I can’t quite grasp what the motivation behind such a product is. Conventional wisdom is that generally, banks reward you for keeping money in them — hence savings account and market market accounts and soforth. It allows for reinvestment of your money. I’m trying to figure out what the percentage is for them to give you money for an abnormally high number of transactions. Saying its to draw more customers seems like a cop-out. I’d be interested to know what the purpose and plan for this product is.

  4. Well, the e-statement and direct deposit requirements obviously lower their costs, since they don’t need to print & mail statements (easily a few dollars per month) and don’t need to process a weekly paycheck (when you consider all the human processing that needs to touch it, for 4-5 check deposits a month it wouldn’t surprise me if that would cost them several dollars per month as well).

    My first instinct was that by doing this they were encouraging people to use their debit card instead of writing checks at merchants. But if that were the case, I think that the requirement would be a limit on the number of checks being written, not a minimum on number of debit-card transactions. So, my only other thought is that they’re getting a cut of the merchant fees for processing the transaction.

    It’s also possible that they’re trying to bump up their transaction count, to hit some threshold for lower processing fees for them, or something like that.

    I tried poking at it a little when I called them up to switch my current account to it, but all the CS rep. said was “It’s one of the requirements Southbridge Savings Bank has established to be able to offer you this great rate.”

    I may try poking at it more in person, as I’m hoping to visit the bank today to continue the process of the loan for our new land purchase.

    And again, it may just be a promotional rate to try to get customers that they’re going to bump down again in a few months. They’re not exactly advertising the product to their existing customers (other than it being on the home page of their website), so if I’d done nothing I’d have continued having my existing 0.25% account with a fee if my balance drops below $500. Just by switching to this account, even if I don’t meet the debit card requirement, I still get 0.51% with no minimum balance. But banks are getting more and more competitive with their checking products, and interest rates in general are trending up, so it’s possible this may be the first of a new wave of high-yield checking accounts.

  5. Some Googling later…

    Article telling banks how to increase their debit card transactions to get more merchant fees
    Chicago Sun article on fees banks make off of debit transactions, and differences between signature-based and PIN-based
    Bankrate article about the same thing

    Now, in this case each of the 10 transactions can be either signature- or PIN-based (I explicitly asked that). However, there is a separate “debit card rewards” program that accumulates points twice as quickly for signature-based than for PIN-based transactions, although it looks like it’s nowhere near as good as the cash back program I get through my credit card.

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