For High Interest Checking and Savings, Think Small, Look Local
If you read other personal finance blogs (and I read dozens), you will be exposed to much information about high yield savings accounts from Internet banks. Account reviews, updates on interest rates, sign up bonuses, and advertisements – it’s everywhere. This information available is helpful to those who are stuck in conventional low yielding savings accounts at brick and mortar banks.
Moreover, for consumers who are interested in high interest checking, or checking and savings in a single high yield package, some of best deals are found at online checking accounts offered by community (small and local) banks. All you need to do is meet some basic account usage requirements and you can get better rates than offered by the big Internet banks.
Comparing “Name Brand” Internet Savings to High Interest Checking Accounts
The Internet Banks are Good….
Let me give just one example. The ING Direct Orange Savings Account is featured in many personal finance blogs. Today, this account offers a yield of 3.00%. The account has no deposit minimums and no fees, which is excellent. On the other hand, it has no checking or ATM privileges so you have to link it to another account if you want to easily transfer or withdraw funds. For most people, that linked account is a conventional checking account at their local brick and mortar bank. It pays little or no interest on deposits.
But The Community Banks can be Better
F&M Bank is a community bank near where I live and work. (Disclaimer: I have no working or financial relationship of any kind with F&M Bank.) It has ten brick and mortar branches where it offers conventional checking and savings accounts and walk-in account services. F&M Bank also has its Smart E-Checking Account. This is an online checking account with a 5.02% yield on all deposits up to $50,000, with no fees and no minimum deposits. This is a better rate than most CD rates. This rate is typical of similar online checking accounts offered by some local and regional banks. The accounts are FDIC insured.
For a dollars and cents comparison, let’s assume that you maintain an average checking account balance of $2500 (in a conventional checking account yielding 0.25%) and an average balance of $7500 in an Internet savings account like ING Direct, yielding 3.00%. For a twelve month period, you will earn approximately $231 in interest in those two accounts. If instead you left all of that money in the F&M Smart E-Checking account earning 5.02%, your earnings would be approximately $500, a difference of $269. That’s no chump change.
Typical High Interest Checking Account Requirements
The F&M account includes a Visa check card that can be used at ATM’s nationwide. F&M reimburses all ATM fees for use of machines outside of its network. Again, this is typical of these accounts. (But some banks cap the ATM fee reimbursements so watch for that.)
There are transaction requirements which are typical of all high yield checking accounts of this type:
Set up at least one direct deposit or automatic payment.
Receive monthly bank statements electronically.
Access the account online at least once each month.
Make at least ten check card transactions each month (must be signature transactions).
That’s it. These requirements are not onerous. The electronic monthly statement is a no-brainer as is the once per month account access. The direct deposit can be your paycheck – just tell your employer where to send it. Or you can set up an automatic payment of your telephone bill, mortgage, or any other vendor that accepts electronic payments (most do). These accounts offer free electronic billpay.
The check card transactions should not be difficult. Even if you are in the habit of swiping a credit card instead of your check card for routine monthly purchases, change that habit ten times each month and you’re earning 5% on all of your funds on deposit.
How Can the Community Brick and Mortar Banks Offer a Better Deal?
This is easy. First, the name brand Internet Banks are spending a lot of money marketing their accounts, which is one reason why they have become ubiquitous on personal finance blogs. Second, the community banks that offer high yield online checking accounts are counting on some folks not meeting the monthly transaction requirements, thereby losing eligibility for the highest rate. (Just like retailers count on many consumers not sending in their mail-in rebates.) Mr. ToughMoneyLove knows that you won’t be one of those careless persons. Those people don’t read this blog. How silly is that?
What about Credit Card Rewards Points?
Some of you may be reluctant to surrender some of your monthly card-swiping transactions for which you would normally use a cash back or rewards credit card. Mr. ToughMoneyLove has two responses to that concern. First, you can use the check card for ten small transactions, saving the larger ones for your rewards card. Second, many banks affiliate their check cards with a rewards program. For example, the F&M Bank check card earns points with a program called ScoreCard Rewards. I don’t know anything about this program (and again I have no relationship to it) but if you are a big fan of rewards programs, it probably has some value.
What about Sign-up Incentives?
You may or may not find incentives similar to those offered by some of the name brand Internet banks, but they are out there. For example, some branches of F&M Bank are offering new customers $50 to sign up plus $25 for each direct deposit or automatic payment that you set up, payable after 90 days. It never hurts to call and ask.
How to Use a High Yield Online Checking Account
These accounts are all online. It really doesn’t matter where you live – you can open and use the account at any U.S. bank, just like one of the popular Internet savings accounts. If you can find a bank near you (more about that in a minute), that would be a plus if you had a problem that needed solving face-to-face. (You don’t have that option with the Internet banks.) Many community banks have reputations for excellent customer service compared to the faceless large commercial banks and Internet banks.
I suggest that you consider an online high interest checking account like this as a combined savings and checking account. You can have your paycheck directly deposited, set up your regular monthly bills for electronic billpay from the account, and use the check card for at least ten routine monthly purchases at your local Walmart, Starbucks, McDonalds, or wherever. Let your unspent funds accumulate in the account as savings so that they earn the 5% interest. That way, you don’t have to worry about transferring money from your checking account to a separate Internet savings account. If your accumulated savings reach the account limit (wouldn’t that be nice), move the excess to another investment. Life is easy.
How to Find High-Yield Checking Accounts
The standard resource for locating Internet bank savings accounts is Bankrate.com. You are unlikely to find the community banks that offer the best high interest checking accounts at Bankrate.com. (I could not when I tried.) However, many of them are listed at CheckingFinder but not all of them. CheckingFinder has a video and FAQ’s on its site that summarizes these accounts in general and then links to each specific community bank or credit union high interest account.
For many of the best deals, you will have to do a little digging (remember – these banks have small marketing budgets). Check your yellow pages or the business section of your local paper, then go to the community bank websites. That’s where you will find the account details and account sign-up information. Don’t forget credit unions because sometimes they offer high interest online checking accounts as well. Some of the credit union accounts are also on CheckingFinder.com
By the way, although many of the banks offering these high yielding checking accounts are quite small, others are more regional. For example, Renasant Bank has branches in three states and offers online checking, yielding 5.01%. (And no, they aren’t paying me anything either.)
The Hard Truth Bottom Line
When it comes to information you read and hear, sometimes it is best to look past the hype and dig a little deeper for the best money deals. Mr. ToughMoneyLove thinks this lesson applies to high interest checking and savings accounts. Do your homework, consider the online accounts at community brick and mortar banks, and you can find a great deal for your everyday cash and savings.