17 September 2007 1237 views 3 Comments Print This Post  Email This Post

Ever since I was a kid, I’ve always walked with my parents into the bank. They always had something to do at the local bank. I remember the long lines, the disgruntled looking people and the employees who smiled so hard it looked like it hurt. I was very happy when the day finally came that my mom and I went into the local Wells Fargo to open a savings account for me. I believe I was around 14, and it was a very exciting time for me. So naturally, I became accustomed to going to the bank and waiting in the long lines and such. By now I’ve actually made some changes in my routine that allowed me to better manage my time. I do most of my transactions with the drive through ATM at Bank of America, I pay my bills with bill pay rather than checks, and I would call customer service rather than going to the actual bank. Times have changed and there are much better ways of doing things now. In fact, things are so different now with online banking that you are actually losing money by having a traditional off-line bank account.

Why Do You Use A Traditional Bank?

Hopefully, we all know about high yield online savings accounts by now. ING direct was the pioneer in that area. However, until now we were still tied to our local banks because we needed checking. We have bills to pay, which usually require checks or at least bill-pay. What’s another reason to keep a local bank account? Well it gives you easy access to your cash. Your ATM card gives you instant access to cash at thousands of ATMs if you’re with one of the big name banks. You can use other bank’s ATM machines as well but you have to pay a fee. Bank of America, who owns the largest network of ATMs, recently raised their ATM fee for non customers to $3. A local bank would also be needed if you prefer to make frequent cash deposits and talk to customer service reps in person.

The Cost

Keeping your money in a traditional bank’s checking account is not free, even though many places give you free checking. That just means that there are no fees. What you are paying is opportunity cost. If you keep an average balance of $1000 during the life of your checking account, which earns you little to no interest, you are losing a ton of money. That money could be in a high yield account earning 4 plus percent APY. But until recently, there was no way around that because the high yield accounts did not have all the features of a traditional checking account.

The Solution

Recently, some banks have come up with an excellent option, the high yield online checking account. These checking accounts have just about all the features of their off-line counterparts such as bill pay and ATM access, except they have a higher yield. Here are some of the popular bank’s programs in a neat little graphic I made:

Update: Obviously the above image is old and banks have since changed their rates, however you still get a much better deal with an online checking account. Check out the different banks to get their latest rates. Check out bankrate.com to get some good comparison info.

These banks are now offering all the features of a traditional bank and then some. Check out E-Trade and Charles Schwab. They both offer unlimited ATM fee reimbursements. This means that you can use any bank’s ATM to get money and the fee will be credited back to your account. Not even a traditional offline bank will do that for you. All of the above three banks offer online bill-pay, which is convenient and efficient. HSBC lacks in some areas but I included them anyway just for comparison. The only downside about online checking accounts is that you can’t make deposits conveniently. You have to send deposits in, which also makes it hard if you wanted to deposit some cash. Of course you also don’t get face to face conversations with bankers, but lets face it, they are only there to kiss your butt and sell you stuff anyway.

Personally I am going with the E-Trade checking account and I will keep an offline bank account but with a very small balance. Because the bank account will be linked to my E-Trade account, it allows me to make quick deposits locally and transfer it over to E-Trade. I chose E-trade despite a lower APY than Schwab because I have a high yield savings account with them as well. I can quickly make transfers between my accounts. I didn’t see a high yield savings available with Schwab. By making small changes like this and earning a slightly higher return on every dollar I can, the savings will add up tremendously over the years.