For High Interest Checking and Savings, Think Small, Look Local

September 8, 2008 by  
Filed under Financial Planning

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. 

The hard truth is that the savings account offerings from the Internet banks that are heavily promoted in the blogosphere (e.g., ING Direct, HSBC, EverBank) rarely offer the best rates for all types of account products. 

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  You are unlikely to find the community banks that offer the best high interest checking accounts at  (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

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.

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14 Responses to “For High Interest Checking and Savings, Think Small, Look Local”
  1. So, how do you know this F&M account is so great if you don’t even use it?

    For me, the best thing about ING is its service and its incredible web interface. If F&M is still using a circa 2002 web interface, it might really turn me off.

    The other thing I love about ING is that is very upfront with deposit delays and its ACH is one of the fastest in the business. All it takes is one mis-routed paycheck, and suddenly F&M doesn’t seems so great.

    But you wouldn’t know that because this account isn’t good enough for you to actually sign up for.

  2. MasterPo says:

    Good article.

    My only thoughts are:

    1) From experience, many local banks will only deal with local depositors. So if you find a great rate outside your area they won’t let you open an account.

    2) Still be careful of super great rates. In this time of failing banks it could be a desperate effort to attract despitors to shore-up their reserves. If it seems to good to me true…

  3. dogatemyfinances: Thanks for visiting and for your comment. Actually, I have three different savings accounts at Internet banks but none are at ING because their account is mediocre in several respects. They excel at one thing: marketing. None of the Internet banks offer good high yield checking which is why looking at a community bank could be an alternative for that money. I don’t care much about a tired looking web interface if (a) it is functional and (b) it pays me more money.

    MasterPo: I agree that finding a local bank in your area is the best way to go for this type of account. I’m not concerned about community bank failures because very few of them are heavily invested in subprime loans. Those loans are either not made or they are packaged and sold. Some of these banks are quite substantial. Renasant is publicly traded. Thanks for visiting.

  4. TML,
    Thanks for the great article. My wife and I are selling our house and planning on moving into a family members house while we look for a new home. I want to make sure I put the money from my house in a good bank with decent returns. I will probably look at some of our local banks.

    I may also try ING as well as the amount I will be putting in is over $100,000 and I want to make sure it’s all insured. Maybe I can do a comparison once I do.

  5. PT says:

    Great article, Mr. TML. I agree that if the risk is the same and it’s just as convenient for the features you need, a higher APY is always better…as long as you can count on it being around for a year. As you know some of these APYs are temporary. In the end though, it pays to do your research and find the best deal for you.

  6. WiseMoneyMatters: With 100k to park short term, a 1% differential can make a big difference. You actually might find a good rate at a full service bank with a deposit that large.

    PT: From the little bit of tracking I have done, I don’t think the rates I am seeing are teaser rates. However, I suspect that a good number of new accounts aren’t getting the full rate because the account holders aren’t doing all of the necessary transactions.

  7. Evan says:


    If the account is owned as a joint account you can have up to $200K in it and be protected (it is per customer per account). However, maybe diversification is still good.

    I am shocked that no one brought up the failure rate of smaller banks? What is more likely to go out of business ING or F&M? Yes, I am aware that IndyBank was huge, but the odds say F&M.

  8. Evan- There have been only 9 bank failures this year, far short of the hundreds predicted by some. Many of these failures were due to poor management practices that would occur in any economic environment. During the 1980’s and early ’90’s, hundreds of banks and S&L’s failed. So we are not in bank failure epidemic.

    It is almost impossible to know or predict which banks may be in trouble because the FDIC and state regulators act quietly behind the scenes for obvious reasons. (My brother-in-law is a lawyer for a state bank regulatory agency.) As IndyMac proves, being large is no guaranty of stability. Therefore, all you can do is put your money where it makes sense financially and let the FDIC handle the risks.

  9. JOE says:

    I’m considering opening one of these accounts when my current CD reaches maturity. Take a look at HIGHYIELDCHECKINGDEALS.COM for a state-by-state listing.

  10. Boss says:

    Mr. TML, The muni bonds we sold on 12/8 have recently recovered 35K of the 40K lost. If it wasn’t for the state of CA’s financial condition we would have stayed in but it is a relief to be out under the circumstances. Moved money into local CD’s as you mention in your recent blog and in the process found a very useful source of info known as VERIBANC. $35 for a quarterly report of all the banks in your region or $5 for one particular bank. I found the info far more comprehensive than As always, thanks for your perceptive insights and dedication. Boss

  11. Ed Nix says:

    Nice site!!! I have liked the internet banks also. Bank of Wichitas was offering 5.25% on their rewards checking for a couple of years but as of May 2009 they are lowering it to 4% the same as the one you mentioned “Esmart” going down to 4% also. I guess it is a gamble but at least these rates are larger than the savings accounts offered. Do you think it is smart to leave these accounts open since their is no minimum balance and just open accounts with banks offering higher interest? Thanks for your site!!


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