My new community bank is paying me 4.01% on the money I have deposited in their fee-free checking account. Have you looked at what your bank is paying you lately?
The last time I checked, MegaBank was paying 0.01% for a checking account, and my old regional bank's rate was only 0.05%. Many of you probably have your money in a checking account that pays no interest at all. Worse, you most likely incur fees to withdraw cash from ATM machines. And on top of that, you might even be shelling out minimum balance charges or the dreaded overdraft fees.
Every time you give a bank one cent of your money, you are simply short-changing yourself. Banks earn interest by lending your money to borrowers -- but you are a depositor, and therefore, you are also a lender. Why shouldn't you be earning interest on your money, just like the bank?
Well, of course, the answer is that you should be. And even if the amount you earn is small, that's no reason to continue to pay your bank; rather, it should be paying you. If you have $1,000 in a MegaBank account earning 0.01%, at the end of one year, you will have an extra twelve cents. At a regional bank earning 0.05%, you will have an extra fifty cents. But at my new 4.01% bank, I will have an extra $40. Small change? Yes, and over time, small change adds up.
Back in 2005, when a few banks were paying 6% on some CD and money market accounts, I was already accustomed to moving my money to find better rates. With accounts in several states, I was earning rates far in excess of those offered by MegaBank. In 2007, as interest on bank accounts began the slow decline, I started looking for local alternatives. For a while, as we drifted through an economic crisis, the pickings were slim. But then last year, I had a stroke of luck: a small Texas bank near my home put up a billboard advertising a rate of 4.01% for a new checking account. I did my homework, and this is what I've learned.
For quite a while now, many perfectly solid community banks and credit unions have been offering very nice interest rates on checking accounts of any size. There are typically no fees, no ATM charges, and no minimums. You do have to use your debit card ten times in each statement cycle, make one direct deposit, and view your statement online. These are the general terms; some institutions may have additional requirements. Remember: the bank is earning a fee every time you use your debit card; that money should be shared with you.
Here are three examples:
- a California bank pays 4.09% on balances up to $25,000 and 1.01% for amounts over that
- a Texas bank is paying 4.26% on balances up to $10,000 and then 1.66%
- an Indiana credit union pays 4.11% on balances up to $11,000 and then 1.11%
And you don't have to look for billboards. The website CheckingFinder makes this an easy process. There are about 700 banks and credit unions in this network, and they offer an account that is generally called either Reward Checking or, in some cases, Kasasa Cash. This program is backed by BancVue Ltd., whose CEO Gabriel Krajicek says, "Our mission is to help the community bankers and credit unions win the war against the megas."
So take a look at CheckingFinder, pick a good local bank, and then stay there.
And if there's not a bank or credit union listed in your town, what's stopping you from opening an account elsewhere? For some folks, the need for a brick-and-mortar bank where they have the ability to go in and chat with a banker is important. If you are one of those people, then stay with the bank that makes you comfortable. But if you don't need those features, earn some interest on your checking account and stop paying fees. Also, keep in mind that with these rates, you don't need to tie your money up in long-term CDs. And there's no reason that you can't open more than one of these accounts, if you reach the bank's maximum. In fact, you could open a second one as a place to store that eight-month emergency reserve fund we're always told to have!
Do your own research as well. This is only one source of information about high interest checking accounts. In the next installment, I'll give you some additional ways to find these banks. Meanwhile, I'd love to hear about the local banks and credit unions you find on your own.
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