Beating the banks with checking and savings accounts


It’s a good idea to have both a savings and a checking account. It’s also important to analyze your bank’s customer service, any fees you are paying, and the interest you are receiving. Consider switching to a new bank if you don’t like what you see.

Bill Boyer, OSCPA Ambassador

Opening up checking and savings accounts is the first step in taking control of your personal finances. If you already have a checking and savings account, you are on the right track. If your parents manage them though, you should probably ask them permission to be reading a newspaper all by yourself without them holding your hand and singing you a lullaby.

Having a checking and savings account will provide you with a strong foundation for your personal finances. However, for this to work, you must understand and optimize your bank accounts such that you beat the banks and not vice versa. Although these accounts are arguably the simplest to understand compared to other personal finance issues, many people become overwhelmed and suffer from hidden bank fees and poor returns.

As you probably know, a checking account lets you deposit money and withdraw it via checks, debit cards, and online transfers. Savings accounts pay interest and are used for short to midterm savings (typically up to five years). This would include saving for Christmas gifts, vacation, a down payment on a car, or even a wedding. Once again, the main difference here is that savings accounts pay interest. Unfortunately, most large banks only pay 0.5 percent interest, whereas inflation is typically around 3 percent. This means that while you might be earning 0.5 percent every year, you are actually losing 2.5 percent annually when you consider the purchasing power of your money.

You might be wondering why having both accounts is necessary. The simplest answer is that this system makes managing your money very easy. Think of your savings account as where you deposit your money to earn interest while your checking account is where you withdraw money from. Checking accounts are designed for easy withdrawal while federal regulations prevent you from making more than six withdrawals per month from a savings account. Having a savings account also gives you great way to budget your money. If every month you deposit $100 into your savings account and leave the rest for spending, you will not be able to access that $100 very quickly and will have successfully saved it.

Now that you understand the nuts and bolts of these accounts, it is time to pick a bank. The two main options at this point are brick and mortar banks and online banks. Here are some advantages and disadvantages to each one:
1. Big, Brick and Mortar Banks (PNC, Fifth Third, Bank of America, etc.): You can easily set up both a savings and checking account at one of these banks. Unfortunately though, these banks pay very low interest (currently around 0.5 percent) and have awful fees. For instance, if you use your debit card to buy something for more than you have in your account, the bank will charge you $30 in an overdraft fee instead of just denying the purchase.
2. Online Banks (ING Direct, Emigrant Direct, etc.): Because these banks only exist online, they are able to minimize their overhead costs. This allows them to offer much higher interest rates (right now about 1.5 percent, but it has been up to 5 percent in better economic times). Many also offer overdraft protection up to $1000 which eliminates those pesky overdraft fees. Also, in my experience, my online bank has great customer service compared with the unhelpful, annoying service I used to receive from a big bank.

If you decide to open up an online bank account, this can be done in 15 minutes and should not cost you anything. Regardless of which type of bank you choose, here are some things to look out for:
1. Monthly fees: There is no reason that you should be paying monthly fees to your bank. Some banks charge fees if you do not use direct deposit or if you have less than a certain minimum in your account. All of these bank fees are negotiable. Call your bank and explain your situation or threaten to go elsewhere.
2. Requiring a minimum balance: Some banks require this in order to offer you free checking or some other service. You should be able to find these things free of charge at another bank which does not require a minimum balance.
3. Teaser rates: Banks might offer you a high interest rate for four months. Who cares? The first four months do not matter. Find a bank that you like, offers competitive rates, and does not have any fees.

If you currently do not have both a checking and savings account, open them now. If you already do, analyze your bank’s customer service, any fees you are paying, and the interest you are receiving. Consider switching to a new bank if you do not like what you see.