Most checking accounts pay little or no interest, and fewer and fewer are free.
But at Patapsco Bank in Dundalk, checking customers can earn about 2 percent a year in a free account or choose cash back or even iTunes rewards. And members of Money One Federal Credit Union in Largo can receive as much as 3 percent.
Both institutions participate in a national rewards program for community banks and credit unions called Kasasa that helps them structure and market free checking accounts. The program is designed to make them more competitive with larger banks.
"It allows us to have a rewards-based checking account, which is very common with the big banks," said Gloria Bondura, manager of Patapsco's Baltimore County branch. "We can roll with the big boys."
Customers do not have to maintain a minimum balance, but they must meet conditions such as direct deposit and a minimum number of debit transactions, which save money or generate revenue for the institutions.
That allows small financial institutions such as Patapsco and Money One to offer higher interest rates at a time when the interest-bearing checking accounts at most banks typically pay in the range of 0.01 percent to 0.1 percent.
"It's 75 times the national average," said Angela Harvey, Money One's vice president of marketing and business development, of the credit union's rate.
For community banks and credit unions, Kasasa and the perks it offers depositors are seen as a way to attract customers, who eventually might take out a mortgage or auto loan. And these institutions raise their profiles by being part of a national rewards program, said Claes Bell, a senior banking analyst with Bankrate.com.
"It seems a good way for them to increase their marketing muscle and compete with larger national banks in their markets," he said. Plus, it allows these small players to advertise free checking when many large banks are eliminating those accounts.
Kasasa was created four years ago by BancVue, an Austin, Texas-based company that got its start in 2004 by developing rewards programs for institutions to offer under their own names. The Kasasa rewards program has been adopted by 169 banks and credit unions nationwide, according to BancVue.
BancVue is not the first or only company producing rewards checking account programs for banks, but it is the largest based on the number of participating banks, said Jim Bruene, editor of Online Banking Report.
"Our mission since the beginning is to win the war on behalf of community financial institutions," said BancVue CEO Gabe Krajicek. "Community banks and credit unions are in decline."
The market share of community banks and credit unions was more than 70 percent in 1994, compared with just over 30 percent today, Krajicek said.
Patapsco's assets totaled about $235 million at the end of March, down from nearly $255 million the year before. Patapsco Bancorp, the bank's parent, reached an agreement with federal regulators last fall to take steps to maintain the soundness of the company and bank, which had struggled with soured real estate loans in recent years.
Phil Phillips, executive vice president at Patapsco, said the disadvantage of a community bank's size is that it cannot offer the same variety of products as bigger competitors.
"Kasasa is a way for us to level the playing field a little bit," Phillips said.
Thanks to Kasasa, a new checking customer at Patapsco has numerous choices when opening an account.
Its Kasasa Cash account pays an annual rate of 2.01 percent on the first $12,000 deposited in checking and 0.75 percent above that. That rate reverts to 0.01 percent if the customer doesn't meet requirements each month of using a debit card 12 times, using direct deposit, logging into online banking and receiving statements electronically.
Instead of a high interest rate, Patapsco's Kasasa Rewards account offers 3 percent cash back on the first $400 of debit card transactions each month as long as the customer meets the same requirements. And its Kasasa Tunes account reimburses customers up to $5 a month for digital downloads from Apple's iTunes or Amazon.com with the same requirements.
All three accounts are free, offering online banking at no charge and reimbursing up to $15 a month of ATM fees, so long as the requirements are met.
Money One offers a Kasasa Cash checking account that pays an annual rate of 3.01 percent on the first $10,000 and 0.51 percent above that. Its Kasasa Tunes account offers monthly reimbursements of up to $10 for digital downloads. The credit union refunds up to $30 in ATM fees each month.
To qualify for the high interest rate or digital rewards, Money One customers must meet requirements similar to those at Patapsco.
It is those requirements that pay for the program.
The debit card use generates revenue because each time the card is used, a merchant pays a fee to the institution for processing the transaction. Smaller institutions can charge a higher fee than big banks. And by requiring customers to use direct deposit and online banking and get statements online, the banks save on costly paperwork.
Customers who do not meet the qualifications forfeit the higher interest rate or reward for that month, but they can earn it the next month if they fulfill the requirements.
Patapsco has offered the rewards program since January. Phillips said it's too early to assess the impact, but "it should help with the growth of the bank."
Money One, which has nearly $107 million in assets, has been offering the rewards for more than a year and has added 1,700 Kasasa accounts, Harvey said. And those customers are doing other business with the credit union, such as refinancing their mortgages, she said.
Both institutions also offer a Kasasa saver program that pays an annual rate of 1.01 percent on a savings account, if the customer meets the Kasasa rewards checking requirements.
A single product or service like Kasasa is not going to reverse the years-long trend of consumers shifting to large banks, said Bankrate's Bell. But an individual institution can benefit from the Kasasa program and so can its customers, he said.
"For customers, it's great," Bell said. "They are going to get these benefits. It's free checking."