Banking Explained

Today it is hard to find a checking account that pays any interest at all. But if you look hard enough, you can still find banks that are willing to pay above average interest rates to either keep you as a customer or lure you away from a competitor.

Some smaller community banks are offering larger interest checking by having you use their debit cards at select merchants. You have to be careful when using these types of accounts. If you do not meet the required minimum purchases at these institutions, then you will get the minimum interest rate. You really have to keep track of your purchases with these accounts.

You will often find that the majority of the higher paying banks are strictly online banks with no branches. These banks are perfectly safe to do business with as long as they are FDIC insured. Always look for the FDIC symbol on their website. If you do not see the symbol, make sure you call the institution to verify they are a participating member.

Also, when you are searching for an online checking account, make sure to read the fine print that states the interest rate you will be receiving. Often time banks use teaser rates that are only good for a limited time, such as three or six months. After that the rate will reset to a lower fixed rate. It can be very annoying to go to the trouble of switching banks and reorganizing your bill pay and having new checks printed only to find out you are receiving the same or lower interest rate you had before.

Speaking of bills, make sure the institution you are considering offers free bill pay as one of their services. Most banks these days do offer it and if they don’t you can surely find one that does. Also, many banks these days offer you a free box of checks to make your transition to their facility even easier.

If you look hard enough you can find some excellent interest rates on checking. Some checking accounts pay more than the online savings accounts these days. If you are lucky, you may find a bank that offers a great rate on a savings account that also allows easy transfers to your checking account. That way you can get a higher rate on the savings or money market and move money into your checking whenever you need it.

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In order to get the best yields on your checking accounts, it is often necessary to use an online bank. Many people worry about the safety of their personal information when using online banking. I can tell you from experience that if you have nothing to worry about when banking online. I have banked on the internet for over ten years with absolutely no problems.

I have used online banks for my high interest checking for years now, and I have never had a problem. Online banking is as safe as going to a traditional bank branch as long as you take a few precautions. You always want to make sure your computer antivirus is up to date. Also, make sure your banks website is conducting transactions that are encrypted. It should not be a problem because all banks are going to take the necessary steps to secure their websites. No one would use their sites if they did not have them properly secured. Still, if you use Internet Explorer, make sure you see the little lock in your tool bar. Also, remember that banking institutions will never call you to verify your account information. Banks communicate by mail generally, and occasionally by email if you have elected to receive notices that way. Always call the bank directly if you suspect someone is probing you for information.

There are two types of banks that offer high interest checking on the internet. Most are traditional banks that have branches and also offer the convenience of banking online. Most of the well known banks that would fall into this category would be Bank of America, Wachovia, Wells Fargo, and Chase to name a few. Almost all banks offer at least some online banking these days. Even the very small community banks are offering internet banking through managed platforms. The problem with these traditional banks is that they have a lot of overhead and the rates the pay can be quite low.

On the other hand, the second type of bank would be the kind that has no traditional branches and conducts all of its business over the internet and through the mail. These types of banks can pay a lot more in interest because of their lower overhead.

Both of these types of banks tend to be very secure with their transactions. The main thing to remember is that as long as they are FDIC insured, there is no risk to your money. In the event of a bank failure, the FDIC makes every attempt to have your money available the Monday after a failure. The FDIC will have a competitor bank in the area that it designates to take over the failed bank. So even if an online bank fails, your money will just be transferred to another bank and will be there for immediate withdraw if that is your wish.

Have you seen the signs hanging on small local banks recently? They claim to be paying unusually high interest rates on checking accounts. Some have been as high as 6%. It sounds like it would be too good to be true doesn’t it? Well think again.

It is true that these banks are paying 4, 5, or even 6% interest on checking. How can they do this with CDs and money markets paying next to nothing and the government paying 0% on treasuries? It does sound fantastic; however, like a debt group that offers to fix your credit,  it does come with some strings attached. Typically you have to have a minimum balance, usually in the range of $1500, and secondly you have to use your issued debit card around 10 times a month at select merchants.

The minimum balance is typical; however, why would you have to use your debit card 10 times a month? Well the answer is simple. The banks make a ton of money on fees collected from the merchant anytime you use your debit card. They will give you a list of places to use the card then you have to make sure you use it at least the minimum required times or you receive the default interest rate. So the bank is paying you a great rate on your high interest checking, and it is subsidized by the local businesses. It has become popular to use a rewards credit card for purchases and this has been hurting the banks. They get much higher rates when you use your debit card for your purchases. Also, you can specify if you want the transaction to be processed as a credit card or debit card. This allows the banks to control what your answer is to this question and put it in their favor.

I this sounds a little unfair, it is. It is great to get such a fantastic interest rate in this kind of market; however, you have to have a little sympathy for the local businesses. If I was a small business and my bank came out with a list like this, I would be a little upset. Also, what happens when a business is faced with increasing costs? Well, usually the increased costs get passed onto the consumer. So you may get a nice high interest checking account, but it may be negated in the increased costs of goods.

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