Your Money_ The Missing Manual - J. D. Roth [68]
Checking accounts
Most people use their checking accounts as the hubs of their financial lives. This is where they stash their paychecks and pay their bills. Nobody expects much more than that from checking accounts. But believe it or not, under certain circumstances, checking accounts can actually offer better interest rates than savings accounts.
Many small community banks and credit unions offer rewards checking accounts, which they provide in partnership with a company called BancVue (www.bancvue.com). Different banks have different names for rewards checking accounts, but they all share similar features. These accounts offer high interest rates—if you meet certain requirements. You have to:
Get your monthly statement online—not via snail mail.
Log into your account at least once a month.
Make a certain number of debit-card purchases each month (usually around 12—and ATM withdrawals don't count).
Make at least one electronic transaction per month, like an automatic payment to your electric company.
If you use your debit card often, a rewards checking account makes a lot of sense. The biggest catch is that the high interest rate only applies to a certain portion of the money in your account. (At some banks, this amount is $10,000; at others, it's $100,000.) Any money above that cap earns only a tiny return.
You can read more about these accounts at My Money Blog (http://tinyurl.com/MMBchecking), or check out the huge list of such accounts at http://tinyurl.com/HYchecking.
Note
Banks pay interest on many accounts, but they don't do it out of the kindness of their hearts. It's good business. The bank takes your money and lends it out to other folks at higher interest rates, or invests it to earn better returns. In exchange for using your money, the bank pays you interest—but much less than they expect to make themselves.
Savings accounts
You use your checking account for day-to-day stuff, but your savings account helps you meet your long-term goals. It's also the best place to tuck your emergency fund (Establish an Emergency Fund). Because you'll eventually end up with a ton of money there, the number-one feature to look for in a savings account is a high interest rate.
A lot of folks have their checking and savings accounts at the same bank. But you're usually better off with your checking account at a local bank and your savings account at an online bank because:
Traditional banks generally offer a pittance on their savings accounts (my credit union's "high-yield" savings account is currently paying 0.10% interest). Online banks can offer higher rates because they tend to have lower operating costs.
It's easy to connect your checking account to an online savings account, but it's slightly tougher to transfer money from an online account to your checking account (it usually takes a couple of days for the money to move from one back to the other). This is generally a good thing because it keeps you from spending the money on impulse—you can't simply pull your money from savings to checking and spend it that same day.
Online saving isn't your only option. Some traditional banks actually offer decent interest rates, so check rates in your neighborhood. When you do, don't forget to ask about unadvertised specials; they might offer great deals you won't know about otherwise.
Be sure to keep an eye on your savings account's interest rate. Rates fluctuate from time to time, and an account that once had a high rate may eventually offer next to nothing. It usually doesn't make sense to chase after higher rates every time your bank makes an adjustment, but you don't want to get stuck in an account paying 0.25%