Feb. 4 (Bloomberg) -- Michael Powell did a double-take when he passed the Austin, Texas, branch of United Heritage Credit Union and saw the sign: 6 percent interest on a checking account.

“I didn’t have to do anything special to get the rate,” said Powell, 34, an information technology engineer at Dell Inc., who switched to United Heritage from Charlotte, North Carolina- based Wachovia Corp. “I just did what I normally do and got rewarded.”

High-yield checking accounts offered by community banks are attracting new customers, according to December data compiled by BancVue, an Austin-based company that has helped 460 institutions nationwide implement reward checking and savings programs. The accounts grew by 531,205 in 2008, almost triple the number a year earlier, said Dan Mahoney, a spokesman for BancVue.

Institutions that have less than $10 billion in assets and are backed by the Federal Deposit Insurance Corp. increased deposits by $45 billion in the third quarter of 2008 compared with a year earlier, according to data from the FDIC.

The high-yield accounts offered by BancVue members typically require consumers to make at least 10 debit-card transactions a month, opt for online banking and use direct deposit for their paychecks, or the rates drop significantly. The banks and credit unions charge no fees to open the account, and there is no minimum opening amount or balance required, said Don Shafer, chairman of BancVue.

Although the smaller banks may try to compete on rates, JPMorgan Chase & Co. offers a broader range of services, products and branch locations, said Tom Kelly, a spokesman for the New York-based bank, which is the third-largest in the U.S. by deposits.

Interest Limits

JPMorgan pays 0.01 percent interest on its premier checking accounts, while San Francisco-based Charles Schwab Corp. offers 1 percent on its Schwab Bank high-yield investor checking accounts and rebates all ATM fees worldwide.

Powell said that before he moved his account to United Heritage, he was earning 0.42 percent at Wachovia.

The FDIC on Jan. 27 proposed limits on interest rates paid by lenders that didn’t meet capital requirements to no more than three quarters of a percentage point above the national average. Less than 2 percent of BancVue members are inadequately capitalized and may be affected, said Mahoney, BancVue’s spokesman.

If the rates paid by the community banks are significantly higher than market rates, the Office of Thrift Supervision may evaluate the bank through on-site monitoring, said Montrice Yakimov, the agency’s director of examinations and consumer protection.

Rates May Change

BancVue participants’ rates aren’t guaranteed and may change at any time. Most are currently paying between 4 and 5 percent, Shafer said. Some banks, such as First Robinson Savings Bank in Robinson, Illinois, are still advertising rates of 6.01 percent on the first $25,000 in a checking account. The Federal Reserve cut the federal funds rate, or the interest rate banks charge each other for overnight loans, to as low as zero in December.

The rate for a one-year certificate of deposit, which usually requires a minimum deposit to open and has a penalty for withdrawal before the term expires, is 2.26 percent, according to a national overnight average compiled by Bankrate.com.

‘Brick and Mortar’

“We save money by getting away from the brick and mortar bank traditions and delivering those savings to customers in the form of higher yields,” Shafer said. Cost-cutting techniques such as not paying to print and mail statements and checks help the participating banks save money, said Shafer. BancVue’s members, located in 48 states, determine the exact terms for their reward checking accounts based on advice from their BancVue consultant.

Consumers who are interested in available rates through BancVue can visit http://www.checkingfinder.com to see a list of participating banks and their respective rates.

Another way for consumers to find higher-yielding accounts is to visit http://www.moneyaisle.com, a Web site that auctions investors’ money to the federally insured bank that provides the highest rate. A recent search conducted on the Web site showed a winning bid of 3.25 percent for $20,000 in a high-yield savings account.

A consumer with less than $250,000 in deposits shouldn’t be concerned about the safety of their funds in any federally insured account regardless of the size of the bank or the credit union, said Stephen Brobeck, executive director of the Washington-based Consumer Federation of America. The decision about where to bank should depend on other factors, including convenience, quality of service, fees, loan rates and savings’ yields, he said.

‘Pure Gravy’

“If the program fits with your daily financial habits, then the additional yield is pure gravy,” said Greg McBride, senior financial analyst at Bankrate.com, who is based in North Palm Beach, Florida.

Tony Gorrell, executive vice president and chief financial officer of Sutton Bank, based in Attica, Ohio, said the bank launched a high-yield checking program, which currently pays 4.01 percent, at its nine branches in June 2007. He said the bank pays BancVue a fee that is tied to the performance of the product. He wouldn’t disclose the amount.

Average balances in reward checking accounts are higher than the bank’s other checking accounts and the combination of products a reward checking account holder has is more profitable than a regular account holder, Gorrell said.

To contact the reporter on this story: Alexis Leondis in New York aleondis@bloomberg.net.

Last Updated: February 4, 2009 12:50 EST