You hate your bank. Admit it. There’s a bunch of fees you don’t understand. The online account options are okay, but not that great. You have to swing by a branch to deposit any checks you get. And someone please explain to me how there are 5 different ways to have a checking account. That’s just crazy.
Hating your bank is one thing, but this article isn’t about describing your angst against the suits that hold your deposits.
Photo via Wikimedia Commons.
This is about action.
You hate your bank? So what? Do something about. That’s what I’m going to show you today.
Find a New Bank
The average person has a checking account with a debit card and a savings account for long term savings, so we’ll talk about those today.
Your average brick-and-mortar bank (aka the kind you can walk into a physical building to get service) has atrocious options for savings. Your rate are going to be pathetically low — we’re talking percentage points of percentage points.
How bad are the numbers?
The FDIC released numbers on June 25, 2012 that put the national average for savings accounts at 0.09%. That’s $9 in interest for an entire year on a $10,000 balance. Pathetic.
Online savings accounts fare much, much better. There’s no way around it: going online is the only way to get decent interest yields on your deposit. Many online savings accounts are paying interest in the 0.75% to 1.0% range right now. That’s at least 8x as much as the national average; you would earn $100 in interest at the top end of the range on a $10,000 deposit.
Get an online savings account today. Earning a lot more interest isn’t the only perk. When your money is online it is a lot more difficult to run down to the bank and drain your funds in a panicked rush. It’s built in protection against your emotions — and that’s nearly priceless.
Checking accounts are slightly different just because your usage of brick-and-mortar facilities depends on your banking profile. If you never find yourself going to the bank for anything there is no reason not to switch to an online checking account. If you are constantly at the bank — depositing checks, grabbing cash, and so on — then it can make sense to have a brick-and-mortar institution.
Just because you might need a physical bank location near you doesn’t mean you shouldn’t seek out better alternatives, though. Here are two to consider.
Online Checking Accounts
Most of your reputable online saving account banks also offer an online checking account option. The main difference between the two is usually:
- A debit card
- The ability to withdraw more than 6 times per month (which is the normal limit on saving accounts)
Online accounts pay interest, too. You can usually get between 0.15% and 0.80% depending on how much money you keep in your checking account at one time.
You’ll be able to write checks, transfer funds back and forth between your online savings account, and use an ATM just like you would with any other bank.
Rewards Checking Accounts
A more unfamiliar option is that of a rewards checking account. When I say rewards, I don’t mean getting points or cash back for your debit card spending.
No, these magical accounts are much better than that.
Rewards checking accounts are programs that banks and credit unions use to market themselves better to the public. The accounts help draw in a lot of potential customers because they’re that amazing.
How amazing? You can see interest rates of 2% to 3% on rewards checking accounts.
Seriously. More than online savings.
How is that possible?
- Bank or credit union wants to grow.
- They offer high interest rates to draw in customers.
- They limit your ability to earn the high interest rate to the first $20,000 to $30,000 deposited in the account. (So if you had $50,000 in the bank, only the first half or so would earn the higher interest; the rest earns a lesser amount.)
- There are a few requirements: you usually have to use your debit card 10 to 12 times, have direct deposit, access your online account once per month, and get electronic statements. (You should be doing all of those things anyways.)
- For the average person, having a limit of $20,000 to $30,000 is more than adequate.
- Customers open accounts, total deposits go up, and over time the financial institution will close off the ability to open a new account for customers while leaving the plan in place for current accountholders.
Let’s do some quick math. Let’s say you can deposit $25,000 at one of these institutions and earn 2% interest. That would take your total interest to $500 in one year.
It’s a beautiful thing. Where other rewards programs encourage spending (cash back, points, etc. from each purchase), this encourages saving money into the checking account. Call it a checking account, call it a savings account, doesn’t matter to me as long as it is paying a high interest rate.
Granted, these accounts can’t be found on every street corner, but they are out there. I recommend using DepositAccount.com’s Rewards Checking Account search tool.
Bank Health and Your Finances
Jumping ship to higher interest rates and better customer service is a great thing, but hang with me just one second. You don’t want to leave a large, stable institution and jump into a gigantic mess, do you?
That’s where bank health ratings come into play. Just like you wouldn’t go to a restaurant with horrible health ratings, an unhealthy bank isn’t deserving of your money.
Two great resources for bank health ratings:
These guides will help you know whether or not you should be excited, timid, or scared of depositing your money with a specific bank or credit union.
One last thing to consider: just because a bank scores in the middle of the rating doesn’t mean you shouldn’t be interested in depositing your money there. As long as the bank has FDIC coverage (NCUA coverage for credit unions), your deposits are covered up to $250,000 total. If the financial institution failed, you will get all of your money back. In the meantime, you get significantly higher interest rates than you can find elsewhere.
Your To Do List
- You can get higher interest rates and the same access to your money that you have now by switching to an online bank.
- Nothing is going to beat the interest rates than an online savings account offers. The lower overhead of not having physical branches is a competitive edge. Make the switch now.
- For most people, online checking works just as well as brick-and-mortar checking.
- Rewards checking accounts have specific requirements, but the rewards are significantly better than anything that any other account can currently offer.
Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He’s building a personal finance freelance writing career and has written for RothIRA.com, Discover Bank, and many others.