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Direct Deposit Requirements for Reward Checking Accounts

Direct deposit is one of the common requirements for high-yield reward checking accounts. For some people direct deposit can be more worrisome than the debit card usage requirement. The self-employed may not have direct deposit. Some people may have direct deposit, but they may not be able to split the direct deposits to more than one institution. This can make it impossible for them to use direct deposit on more than one reward checking account.

Fortunately, you can substitute an ACH transfer for direct deposit at most reward checking accounts. Typically, the ACH transfer will have to be initiated at another bank. This is one reason why a hub account at an internet bank can be useful. Using the internet bank's ACH bank-to-bank transfer service, you can set up monthly ACH transfers into or out of your reward checking account. You set it up once, and you never have to worry about it again. And unlike some direct deposit systems, it's easy to change. So if the reward checking rate plummets and you want to close the account, you can easily end the automatic ACH transfers.

These ACH transfers can also come in handy if you want to keep a reward checking account open. If a reward checking account has a drop in rates but you think it may become useful again sometime in the future, you may not want to close it. However, if you let any account become idle for too long, you may start to incur a monthly inactivity fee. The monthly automatic ACH transfers can prevent this.

In my recent post Best Internet Banks to Use as Your Hub Account, I described the ACH transfer features that make for a good hub account. Ally Bank and WTDirect are two internet banks that have many of these features. Many popular internet banks like ING Direct and Dollar Savings Direct lack several of these features.

Banks do not always make it apparent if an ACH transfer can replace direct deposit. Banks will often prefer direct deposit over an ACH transfer since the direct deposit increases the chance you'll be using the account as your primary checking account. Also, direct deposit can make it harder for you to switch banks since direct deposit can be a hassle to change.

In the case of Danversbank, the listed requirements make it clear that an ACH transfer can replace direct deposit. Here's how they list this it:

sign up for direct deposit or receive a recurring ACH.

Often, it's less clear. Here's how NavyArmy FCU describes the requirement:

set up one direct deposit or authorize one automatic payment from your account

An example of an automatic payment would be a utility bill. This is typically done by giving the utility company your bank's checking account numbers and setting up recurring payments. An ACH transfer from an internet bank will very likely meet this requirement.

Finally, here's ViewPoint Bank's requirement for their Absolute Checking Account:

Receive direct deposit OR make one online bill payment per month

In this case it's not obvious if an ACH transfer can replace a direct deposit. In most cases I've found that an ACH transfer will count. However, it's always a good idea to verify this with the bank. A reader just informed me that he received this verification at ViewPoint:

I questioned them on this when I opened my account a few weeks ago and they said as long as it was an ACH incoming transfer, it should work. I set it up to happen each month automatically and today called them to double check that what I’d done had worked, and they have told me (verbally) that I’m OK.

At the end of a statement cycle, banks will often email you the number of times that you have met each of the requirements. This is another way to confirm that an ACH transfer counts.

Automatic ACH transfers make it much easier to open multiple reward checking accounts. Banks may prefer a direct deposit, but they rarely will require only true direct deposit. So don't let direct deposit hold you back from opening a reward checking account.

Finding the Best Reward Checking Account

Please refer to the reward checking section of EpBooks.us to find reward checking accounts in your state or that are available nationwide.

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Anonymous | | Comment #1
Great explanation, Ken! This post will be a nice assist in trying to explain how the system works to the folks, who are still shy of internet banking. Thanks!
Anonymous | | Comment #2
A recent New York Times story referenced high interest rewards checking accounts through Kasasa, which points you to the nearest participating bank in your area. In my case, that bank was Founders Bank. Two phone calls to Founders later, the upshot is that the ACH transfer/automatic monthly payment requirement can be satisfied only by an automatic monthly debit which must be set up by a third-party vendor. They won't accept any kind of transfer from another bank. A monthly payment set up at your end also doesn't count.
Anonymous | | Comment #3
Follow-up: I called Founders Bank again (call #3 this morning): what if the bank that owns my credit card debits my Founders account for the monthly payment? That is, the credit card bank pulls the money -- will that satisfy the monthly ACH transfer requirement? Yes.
Marc | | Comment #4
I don't think there is a technical way for a bank to indentify if an ACH is "recurring" or not. So don't be scared by that wording if you like to do it manually, as I do, or from different accounts each month.
darkdreamer4u | | Comment #5
I've been doing the following for at least 7 different RCAs: I use ACH to transfer 5 bucks from my Ally account to the RCA the day after a new reward cycle begins (when I check the amount of interest paid) and can stop worrying about that requirement and focus on the debit card usage. The $5 deposited plus the paid monthly interest (which brings the balance above the max. balance - usually 25k) is roughly the amount I spend using the debit card. That way the bank appears to be satisfied and I'm happy to thereby always keep the balance at around the max balance. Dormant RCAs are kept at a minimum balance between $1 and $2.
John C
John C | | Comment #7
Two comments:

1. Re hub banks, the Max Rate Checking Account at E*Trade functions very well in that capacity, provided you meet the monthly requirements for avoiding a monthly fee (and they have quite a few different ways for doing that). Free ACH transfers in and out, up to 20 or more banks that can be linked at any one time, quick transfer processing. Oh, and, their included VISA debit card refunds others banks ATM fees nationwide and has no foreign currency fee charges.

2. Re direct deposits, I've never had a RCA account yet that didn't accept a simple ACH incoming transfer as satisfying whatever language they use about direct deposit. And of course, a lot of banks say direct deposit or any recurring ACH debit (and sometimes even credit).

It's a pretty simple thing: every month, if you want to keep your RCA account balance at its maximum allowed, just use an incoming ACH to replenish the account for whatever spending (debits) you've done in the prior month. That keeps your balance at the max and maximizes your interest earnings, and satisfies the DD/ACH requirement at the same time.

Anonymous | | Comment #8
If you can locate a smaller bank that is nevertheless an ACH originator, it is sometimes possible to speak with the person in charge of this service. If you're lucky, that person will be willing to characterize your ACH push in a manner not possible when you are doing the push yourself. It's a little "inside baseball" and also the person running the service must be willing. But it might be worth a try. For example, the push might be marked "salary" or "pension" or . . whatever works.
amexmale | | Comment #9
About Founders Bank.....I was told specifically and unequivocally by the President of Founders Bank that they would NOT count ACH transfers as a qualifier for their Reward account. Even so, their own automated email at the end of the month DOES count the ACH transfer as a qualifier. However, because I didn't trust Founders to honor its agreement, I stopped using them. Moreover, the $10k max became a further deterrent.

I asked Founders more than once to clarify their requirements on their website, but the last time I looked, they had still not done so.

There are better banks than this one.

kiwi | | Comment #10
01/08/2015 DIRECT DEPOSIT QUESTION? Many credit unions say they require direct deposit when they will also count ACH transfers without having it documented in their terms and conditions. Will INOVA count the ACH deposit the same as a direct deposit for the requirement. I just reopened my account. I can meet their 5 $51 charges now. Thank you