Get a higher return for your money

Most individuals have money in regular checking accounts which they use for their regular day to day expenses and deposits. The main issue with these regular checking accounts at banks is that they pay very little in interest rates – sometimes lower than half a percentage point per year. In addition to that most regular checking accounts have many charges including a monthly fee, fees for sending you your monthly statements, inactivity charges, fees for getting 150 checks for your checkbook and many others. In other words regular checking accounts are not only producing a very small rate of return but also are costing depositors a large amount in fees. If you hold $10,000 on average in your checking accounts while you could have found a checking account paying 2% more than your bank, you are essentially losing $200/year.

There is a solution of course and it is in many of the high yield online checking or savings accounts out there. I have been using Charles Schwab Online checking account for over one year now and I am more than happy with it. I have my paycheck directly deposited to my account and I have no monthly fees or ATM fees whatsoever. I get an unlimited amount of free checks in addition to the above average interest rate.

My rate was 4% when I opened my Schwab Checking account back in 2007; as the Federal Reserve started cutting interest rates however my rates has subsequently dropped to 1.75%. However I still believe this is better than my other checking accounts which pay about 0.13% per year in interest. Since the money in my checking account is mostly gone by my next paycheck, the incremental earnings from the higher interest rate is money well received.

When researching your online checking accounts, make sure that you understand all of the terms. You generally want to avoid the online checking accounts that have a high minimum balance to open and keep your account.

There are other online high-yield checking options including HSBC Direct, ING Direct and many others as well. Most high-yield online checking accounts are FDIC insured, which means that you could sleep safely at night knowing that you are guaranteed a return of your principal, as long as you have less than $250,000 in your accounts.

Funding your online checking account is not a big hassle. You could either transfer the money online from your previous checking account to your new high yielding checking account. You only need to know your routing and account numbers to do that. It only takes a few days for the transfer to be completed.

This post appeared on Fierce Financial Tips: The Carnival of Personal Finance #178, Struwwelpeter Edition