Financial High Coup: Why High-Yield Checking Accounts Trump Free Checking
Report Summary
Financial High Coup: Why High-Yield Checking Accounts Trump Free Checking
High-yield checking accounts have a bright future in the lineup of banks’ checking account offerings.
Boston, September 1, 2011 – A new report from Aite Group examines the demand for and profitability of free and high-yield checking accounts. The report is based on data on high-yield checking accounts provided to Aite Group by BancVue Ltd., a developer of software for the financial services sector, and Aite Group analysis of the firm’s REWARDChecking® product at 120 of its community bank and credit union clients between 2009 and 2011. It reveals that high-yield checking accounts grew more rapidly and generated greater revenue for banks during the recession than did free checking accounts.
The passage of the Durbin Amendment by the U.S. Congress will reduce by roughly 50% the revenue that U.S. banks will receive on debit card transactions. This has led to speculation by bank executives and industry experts that financial institutions will discontinue debit card rewards programs and stop offering free checking accounts. Aite Group believes, however, that high-yield checking accounts have a bright future in the lineup of banks’ checking account offerings. Compared with free checking accounts, high-yield checking accounts were more effective at acquiring accounts, generating deposits, producing interchange revenue, and delivering profits from May 2009 to April 2011, even in the face of declining interest rates.
“Although month-over-month account growth for REWARDChecking accounts declined between 2009 and 2011, high-yield accounts grew more rapidly than free checking accounts,” says Ron Shevlin, senior analyst with Aite Group and author of this report. “Additional revenue generated from interchange and other income, together with lower service costs, made high-yield accounts more profitable than non-interest-bearing accounts.”
This 16-page Impact Note contains 14 figures. Clients of Aite Group's Retail Banking service can download the report.