Killer Checking (and Savings) Deals
Posted Jul 23, 2007 | 22 Comments
tags: checking,
fidelity,
money,
reviews,
schwab
Who Else Wants Free Money?
If you have any significant amount of money that's earning less than 4% interest, this article is for you. You might already have a checking account at a local brick and mortar bank with lots of branches and ATMs in your neighborhood. These accounts have one advantage, and I already mentioned it - local branches and ATMs. The huge downside is that they earn no interest, and the "savings" accounts that are tied to them typically earn half a percent or less. There are many smarter options for parking your day-to-day cash, and today I'll be looking at the best checking accounts among the most savvy of deal-finders.
High-Interest Heaven
A few weeks ago, I decided to investigate high-interest savings and money market accounts as a place to store extra cash that I could siphon from my existing checking account. The first one I looked at was ING's Orange Savings account with 4.5% APY, because I had seen commercials and gotten junk mail about it. I quickly discovered that ING launched an online checking account earlier this year, called Electric Orange, that earns just 0.5% less interest. The Orange Savings account immediately lost its appeal for me, in light of this new high-interest checking account.
After all, your checking account is where all the action takes place. It's where most people set up their employer's direct deposit to go so the money is ready to be used for paying bills, writing checks, and using a debit / ATM card. It always made sense to me that banks separate the savings account from the checking to add a barrier to getting any interest on the money they are holding for you. I almost couldn't believe my eyes that this "checking" account earned 4%, while my current bank's "savings" account didn't even break half a percent. To me, a high-interest checking account screams simple and automatic, two of my favorite lifehacks. I was excited about Electric Orange, but I had to do more research. What's the catch? Is this the only account of its kind?
As I suspected, there are some drawbacks to Electric Orange that keep it from being perfect. As an online checking account, there are no local branches or branch ATMs. You can still set up direct deposit, but to deposit paper checks, you will have to send them to the bank by mail. As for making withdrawals, ING has that pretty well covered. With Electric Orange, you can use the extensive Allpoint network of ATMs without incurring any fees. This ATM network is surprisingly widespread and plentiful, and most people won't have a problem finding several ATMs in their area to use for free. In fact, it may well be the case that the coverage of the Allpoint ATM network is better than any single bank in your neighborhood.
Beyond the lack of local branches, you also don't get traditional paper checks with Electric Orange, but you can request a check you fill out online to be sent to you by mail, which takes a couple days. This is better than nothing, but really it would be a pain to have to go through such a process just to give someone a check. The lack of some of the usual features of a checking account with Electric Orange may not bother you one bit, but I'm not one to jump on anything without looking at what else is available first.
In Search of the Perfect Account
Well, it turns out there are several alternatives to Electric Orange, and they earn even more interest and provide free paper checks! And as opposed to using the (albeit respectable) Allpoint ATM network, most other online checking accounts give you rebates for ATM fees you incur, so that you can use any ATM you want! Of the accounts I've picked out below, you should never run into trouble with ATM fees (others have smaller limits like $6/month). None of these accounts have monthly maintenance fees, and they are all FDIC insured except for Fidelity (SPIC insured). Some will even supply you with pre-paid envelopes for making check deposits by mail. Saving that precious time it takes you to write the bank's address and stick a stamp on an envelope (that you bought with your hard earned cash), you could make the argument that having pre-paid deposit envelopes is even more convenient than visiting a branch ATM like we're all used to. In the table below, I've put the best checking accounts available today side by side, so that you can quickly and easily see the important differences that set them apart.
| ING Electric Orange | SalemFive eOne Checking | E-Bank ePremium Checking | Schwab Investor Checking | Fidelity Core + MMA | |
|---|---|---|---|---|---|
| Annual APY | 4% | 5% | 5% | 4.25% | ~4.4% / ~5.15%3 |
| Minimum Balance | $0 | $0 | $25002 | $0 | $04 |
| Paper Checks | no1 | yes (100) | yes (unlimited) | yes (unlimited) | yes (unlimited) |
| ATM rebates | none (Allpoint network) | $15/month | unlimited | unlimited | hard to qualify5 |
| BillPay service | Yodlee | Metavante | Checkfree | Checkfree | Checkfree |
| ACH | yes (1d+2d) | no | no | yes (1d+3d+1d) | yes (1d+4d) |
| Pre-paid envelopes | no | yes | yes | yes | no |
| Quicken downloads | web access | direct, $5/month | direct | direct | direct |
| Hard pull | yes | yes | yes | yes | no |
| Links | sign up | sign up | sign up | sign up | sign up |
- ACH
- Automated Clearing House = electronic transfer of funds to and from different accounts. ACH on each account is detailed below.
- Quicken downloads
- With Web Connect Access, you have to go to the bank website to initiate downloads. With Direct Connect, your account info can be downloaded from within the Quicken program.
- Hard Pull
- See this explanation of hard vs. soft credit pulls.
- You can request a check you fill out online to be mailed to you
- $10 monthly fee if $2500 minimum balance not met
- Core account set to FTEXX Municipal Money Market earns ~4.4-4.6%, varying with your federal and state tax bracket. FSLXX Select Money Market earns ~5.15% and auto-sweeps into Core.
- $2500 minimum to open account, after that no minimum on the Core account. FSLXX fund requires a $2000 minimum balance.
- $5000 minimum balance to qualify for debit / ATM card, $500,000 for ATM rebates (I'm not joking)
SalemFive and eBank offer straightforward online checking accounts similar to Electric Orange, except they lack the useful ACH function. Their advantages over ING are real paper checks, freedom to use any ATM, and a full percent higher APY. With SalemFive there is no minimum balance, while eBank requires $2500 in the account to avoid a $10 monthly fee. If keeping this balance is not an issue for you, the benefits over SalemFive include unlimited free checks, Checkfree billpay (considered the best by many), and free direct connect to Quicken. The $15/month ATM rebates offered by SalemFive is more than sufficient, making the unlimited rebates offered by eBank a negligible selling point.
has apparently had a small bank in Reno, NV since 2003. Now they are going after the online checking market with Investor Checking. You typically open this account with a Schwab One brokerage account (waiving that account's minimum balance requirement). The resulting combination is something quite unique and appealing to me. The checking account pretty much runs the table (pun intended), meeting or exceeding every perk offered by the other banks. It has a moderately lower APY (4.25%), but the unmatched feature set is perhaps worth the loss of interest to those who aren't keeping a ton of money in the account.
Fidelity Investments provides full check-writing and Bill Pay service on Core accounts, which is where your money sits if it isn't invested anywhere else. People have been using it as their main checking account with great success. I recommend reading the Quick Summary in the Fidelity FatWallet thread for all the details.
While Fidelity gives you a lot of benefits like Checkfree billpay and ACH, and has the potential for very healthy earning power, the main downside is in the debit card. First, you have to keep a $5000 minimum to qualify for the card, which is issued by PNC Bank. To qualify for ATM rebates, your balance must be in excess of $500,000! So, unless you are already quite wealthy, you'll just get an ordinary PNC Bank check card, although if you happen live in Pittsburgh that's not so bad.
Fidelity as a checking account
You should change your Core account from FCASH (the crappy default) to Fidelity Municipal Money Market (FTEXX), a tax-free fund that has a variable interest rate depending on your federal and state tax bracket, typically around 4.4-4.6% (even higher depending on your income). See here for a detailed explanation of how this works. If you can keep a $2000 minimum balance, you can take it to the next level by putting your money into the Fidelity Select Money Market fund (FSLXX), which currently earns 5.15%. You can't actually write checks out of FSLXX, but the sweet thing is Fidelity will automatically sell FSLXX shares and sweep the money to cover checks and deductions made on the Core account with no fees or limits.
Many people keep all their money in FSLXX and just let it sweep into the Core as needed. This appears to be an unofficial but extremely reliable feature. It seems a tad abusive and brazen to be testing the lenience of Fidelity like this, and it may be prudent to keep at least some money in the Core account to avoid constant auto-selling of FSLXX, and to avoid any penalty that may arise if Fidelity decides to quit being so nice!
Presidential Checking PLUS is another online checking account that I could have included in this round-up. It apparently has a great track record and a lot of people still use it and like it. They were disqualified because their website looks like it's out of the 90s. I'm just kidding, if someone wants to help me fill out another table entry I will add it, along with any other account that is deemed worthy of having such a high honor bestowed upon it.
There are also several small local banks now offering checking accounts that earn upwards of 6% interest! See "Local High Yield Reward Checking Accounts" on Bank Deals. This seems to be a recent trend, and most just require you do set up your direct deposit with the account and complete some number of debit card transactions each month. I don't know why this trend is going on, or how long it will last, but it could be a great deal if you live near one of these banks.
Taking Advantage of Multiple Accounts
Seeing as there is no downside to having more than one checking account (and because people tend to develop a strange devotion to their branch banks), many people will keep their existing checking account with a branch bank for depositing paper checks, and then use ACH to transfer the funds to a high-interest online account.
There are subtleties to how ACH works with each of these accounts though. With ING, the money shows up in your account the next day, and there is a subsequent two day hold before you can use the funds. During those two days your money does not earn interest. There are a lot of folks on the FatWallet forums who's head would explode if they weren't earning interest AND didn't have access to their funds for those two days. It doesn't seem like that big of a deal, considering the amount of money it would take to gain any significant interest worth getting upset over losing in a two day period. Meanwhile, Schwab and Fidelity do better by FWers. They also transfer the funds in one day, and then have 3 and 4 day holds respectively, during which you DO earn interest and are able to use the funds for making trades, but not for withdrawal. Schwab currently only lets you ACH into the linked Schwab One brokerage account (this may change later this year), so you have go to the website and do an additional same-day transfer from Schwab One into Investor Checking once the three-day hold is up.
Float time is good - ING is not
Paralleling the way they temporarily smuggle your incoming ACH funds, ING sticks it to you when you send checks compared to the other banks. They deduct the amount of the payment the day the check is sent, while the other banks will leave your funds intact until the recipient actually cashes the check. This is called "float time," and as with ACH, it's nice to get those few extra days of interest on your money. Once you realize these subtle shortcomings, combined with the lack of real checks or a more competitive APY, ING doesn't seem quite as appealing.
I Talked to Chuck
Well not really, but I did choose Schwab Investor Checking, because it offers more flexibility than any other account, and adds the intriguing aspect of a linked Schwab One brokerage account. I've been meaning to start doing some small investing on my own, and the convenience of having the Schwab One account linked to my checking is just about the best way I can think of for doing that. Charles Schwab is one of the biggest names in discount brokerage, and there are a ton of no-load mutual funds available with no transaction fees. And as you can clearly see in the table above, Schwab gives you every feature you could possibly want on the Investor Checking account.
As for the advantage over Fidelity, it's the debit card. Fidelity almost got my account, but a $5000 minimum just to get the ATM card made it impractical. In truth, I currently couldn't even meet the $2500 required to open the account. Once I do save up an appreciable amount of cash this year, I plan on quickly contributing my $4000 yearly limit to my IRA. And of course the real benefit of Fidelity comes when you hold your money in FSLXX, which requires a $2000 minimum balance. The bottom line is that I'm just not there yet financially for Fidelity to make sense.
On a side note, the web sites for Schwab and Fidelity both have excellent, ergonomic designs. Both look really slick, are very easy to navigate, and offer a lot of content to help you research your investing.
Savings and Checking Combos
Another (more cumbersome) way to go about earning top dollar on your liquid cash assets is to have a free, no-interest checking account linked to a high-interest savings or money market account. These have APYs of ≥5% and may even allow limited check-writing in addition to being linked to a real checking account. If so, you are generally limited to 6 transactions per month (ATM use doesn't count), and only three of those can be checks or debit card use (ACH transfers could eat up the other three). With this kind of setup you have to keep an eye on your checking account balance and the number of transactions you're doing on the savings account to avoid extra fees.
Accounts like this are available from GMAC, HSBC, Citibank, Washington Mutual (blog post), and Bank of America. As my balance is usually low, I prefer the consummate account features of Schwab Investor Checking over the moderate increase in APY. But, if you keep a higher balance, a 0.75% increase could make a big difference. Extreme FWers would kill for a 5.3% rate instead of 5%, even if it means many hours spent over the course of the year micromanaging balances in checking and savings. I'd rather just get a SalemFive or Fidelity account to earn that ≥5% rate, and retain the no-hassle peace of mind of a simple and automatic single account.
For a pure savings account, the current leader is FNBO with 6% APY (blog post), announced May 1st and guaranteed through Sept. 28th. Just a few months ago it was 5.25%. This illustrates an important point: the rates for all of these accounts will fluctuate a little (or a lot) with the financial climate, promotions, and federal interest rates. A lot of banks have offered teaser rates only to have them revert to below average after a short period of time. If you get in on it, like this FNBO deal that was promised for 5 months, you will come out on top with a nice load of interest earned before you move on to your next victim :-).
Becoming Deal-Savvy
A great place to find out about these banking deals as they come up is the appropriately named Bank Deals blog. It's a nice, clean source of information compared to surfing the sometimes murky waters of the FatWallet Finance forum. It also gives a lot of attention to various CDs, many exceeding 6% APY, for those of us who can commit to tying up a chunk of cash for a year or so.
Another awesome blog is My Money Blog, which has a scope beyond just banking deals (although it doesn't miss a beat on that note), and contains a lot of interesting, practical financial advice regarding investments and retirement strategies.
For an up-to-date overview of high-interest checking, savings, and money market accounts, always check the Best current APY/APRs thread on FatWallet.
Summary
If you are sitting on thousands of dollars earning less than a percent interest, opening any one of these accounts would be a great choice.
- If you liked this article, buy me a drink!
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