Wouldn’t it be nice to have a place to park your cash at an annual interest rate of 5%-6% that is easily accessible without penalties for early withdraw? Well there is such a place and it’s as easy as establishing a free checking account. Well you might say “I’ve heard of high interest checking accounts such as the one that ING is offering with a whopping .025% APY but that’s an insult.” Well you are right! Large banks such as Wachovia, Bank of America, RBC, BB&T, etc are not offering a great yield on your cash. It is the smaller community banks and credit unions that want your money and offer a much greater return.
Earning 5%-6% does come with some minor drawbacks. But before I discuss the drawbacks let me point out the advantages of small banking.
Besides the obvious benefit of collecting a higher than average APY there are other advantages:
- Free checks. Some banking institutions offer free checks for signing up. Some even extend this offer indefinitely.
- No ATM fees. Many offer the advantage of not having to pay ATM transaction fees. Some community banks and credit unions realize that potential customers may shun smaller banks because they don’t saturate every block in every town like their competitors. By offering customers the ability to use any ATM with no fees this makes banking much easier.
-FDIC Insured. Most small banks are FDIC insured. Be sure to check with the FDIC website http://www2.fdic.gov/idasp/main_bankfind.asp and perform a search on the bank that you are interested in.
- Free postage paid envelopes. If you live in a remote area or an area that does not contain any banks that offer a high interest checking account you can mail in your deposits in free postage paid envelopes.
- Deposit money without leaving home. I would never suggest sending cash in the mail, however I would not hesitate to deposit checks through the mail. Just place the check(s) you would like to deposit in the provided pre addressed, postage paid envelope and send it off.
- Better customer service experience. Having a high interest checking account at a smaller community bank or credit union gives you the opportunity to know your banker. You will usually deal with the same person and get to know each other.
-It’s fully accessible! This is one of the greatest advantages of having a high interest checking account. Most banks allow you to access all or most of your cash without penalty. Try that with a CD!
With the good come the bad. Here are a few disadvantages:
- Depositing cash can be difficult. Depositing checks are as simple as placing them in an envelope and mailing them. What about depositing cash? Well depositing cash is a bit more complicated. You have two options: Drive to the bank and make a deposit (can be difficult if your account is in a another city or even another state) or establish a local checking account, deposit the money there, write a check to yourself then mail it to your interest checking account.
- Meeting monthly requirements. Most high interest checking accounts require that you meet certain criteria each month such as completing 10 debit card transactions per month or setting up at least one direct deposit per month in order to receive the promised interest rate. This is not much of a disadvantage if you use this as your primary checking account.
- Limits on amount that you can earn interest on. Some banks place limits on the amount that you can collect interest on. Limitations range from $25,000 to $100,000 depending on what state you choose. Remember, the primary reason for using an interest checking account is to have accessible cash for emergency situations, vacation, saving for a down payment on a house, etc. This would not be a wise long term investment decision. There are other investment options that produce greater yields but require that you lock your cash in for long periods of time.
- Depositing through the mail can take time. By making deposits via snail mail you have to wait for the post office to deliver your deposit to your bank and wait for them to process it. This can take anywhere from 3 to 10 days from the time it leaves your mailbox- a definite disadvantage when time is money.
- Receive electronic statement in lieu of paper. Chances are that if you are reading this article on the internet you would have no problem receiving an electronic statement. Some old timers may become frantic at the thought of an e-statement. I’m not exactly sure why but maybe they believe that the bank absconded with their money if they don’t receive that piece of paper in the mail every month?
Check out http://www.highyieldcheckingdeals.com/ for a fairly comprehensive listing of high yield checking accounts that may be available your. Remember, if you don’t reside near one of these banks don’t get discouraged. It may be a little more work to send your deposits in but its well worth the effort. Also, some of these accounts are offered nation wide which increases the likelihood of you finding the one that best fits your needs.
Ultimately it is up to you to weigh out the pros and cons to establishing a high interest checking account. It is my opinion that the pros outweigh the cons by far.
{ 2 comments… read them below or add one }
I definitely agree about going to local banks. They provide more customer services than any large bank chain ever could. The small banks need the money and will give out more incentives in order to gain a larger customer base. The larger banks could care less and will not hesitate to hit you with all types of fees and charges.
It’s important to state that many of the smaller community banks ONLY SERVE THEIR LOCAL COMMUNITY. They do not offer high interest checking account to anyone who does not have and cannot prove a connection to the community that the bank serves. I have not found this information listed as one of the qualifications on any of the sites that recommend high interest banking, including yours. I learned it the hard way, by calling the banks themselves.
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