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We currently have two rewards checking accounts. We are nearing the maximums permitted on each account, after which we receive .5% and .25% APY. It's within our means to perhaps open another one, but at that point we are looking at using our debit cards 50 to 55 times a month. I feel that running that number of debit transactions is getting out of hands as it's just the two of us. I realize there are easy ways to game the system, but I want these things to stay around and another person doing just such that could lead to the ends of these accounts.

We are saving towards a new house down payment. As such we don't require these funds to be fully liquid, but would still like to remain free of as much risk as possible -- however I realize we are unlikely to find anything near our rewards checking accounts (4% APY interest for meeting various rules: direct deposit, a certain number of debit card transactions, and not receiving a paper statement), but would hope we can get at least half of that.

We aren't fully sure when we will be buying, but we are probably a couple of years out. For that reason I don't think CDs would work. Even if we ladder them, when we need the money we will need it pretty much instantly.

Do I bite the bullet and just find the best available money market account? What other options do I have that let me deposit monthly, and not have a timebomb associated to accessing that money that isn't in the initial lump sum?

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If you're absolutely certain that you won't buy a house within a year or so, I'd still be tempted to put some of the money into short-term CDs (ie, a max of 12 months). I think that at the moment CDs are a bit of a mug's game though because you'd hardly find one that offers better interest rates than some of the few savings accounts that still offer 1%+ interest.

A savings account is probably where I'd put the money unless I could find a really good deal on a CD, but I think you might have to check if they've got withdrawal limits. There are a couple of savings accounts out there that pay at least 1% (yes, I know it's pitiful) so I'd seek out one or two of those. From memory, both Sallie Mae and Amex offer those and I'm sure there are a couple more.

It's not great that your money is growing at less than inflation but if you're saving for something like a downpayment on a house I would think that (nominal) capital preservation is probably more important than the potential for a higher return with the associated higher risk.

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In October 2011 in the United States, you just don't have any options. Save your money in a savings account and that is the best you can do. Your desire to buy a house means you are a saver not an investor, and you risk tolerance on this pile of money is 0.

Save it in a bank account; I highly doubt chasing an interest rate will pay off with any significance. (being highly dependent on your opinion of significant)

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Rewards cards charge the merchant more to process. So the card is making money when you use it. So if your concern is for the cards going away because they are losing money... That is not going to happen because you use it too much. If their business model has them losing money because they are giving away more rewards than they make then they are going to go away anyway. TANSTAAFL.

If you are looking for security and the ability to access your funds when you need them then a standard savings account works great. We have a few Credit Unions that have over 2% return while its not much it is safe and liquid and better than the Stock Market did in the last year.

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  • These are rewards checking accounts, not credit cards -- we receive 4% for meeting various rules (direct deposit, a certain number of debit card transactions, and not receiving a paper statement). – Scott Sep 29 '11 at 17:46
  • Most of them are one time rewards designed to lure you to open an account with that bank. – user4127 Sep 29 '11 at 18:20
  • We've had these accounts for a couple of years now, with the specified rates. They have the right to change them, but we have only had one decrease in that time frame. It's good to know that local CUs might have savings accounts at 2% still. – Scott Sep 29 '11 at 18:43
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    @scott So you recieve 4% monthly interested on your deposits in your checking account? Like 48% yearly return? – user4127 Sep 29 '11 at 19:22
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    Well they are making money on your transactions. They get a cut every time you use your debit card. Chances are you have more than 50% turnover of your income. So they get ~2% of every debit transaction you make. Chances are that 2% of their transactions is much higher than the 4% of your average balance for a year. – user4127 Sep 29 '11 at 19:32

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