By Louis DeNicola, Cheapism.com
In spite of the bad rap surrounding the banking sector of late, most of us continue to use checking and savings accounts associated with the very same banks implicated in the financial crisis. When it comes to storing your money, and earning interest on that money, banks are far more useful than a box under the mattress. But if your checking account requires a minimum balance, doesn't reimburse for ATM fees, or assesses a monthly service charge, consider switching to a no-fee banking arrangement. Most no-fee banking accounts are offered by online banks that cut expenses by not having to pay personnel, rent, and basic overhead to keep branch locations open. These savings are passed on to customers in the form of higher interest rates, lower fees, and free services.A no-fee banking option might be ideal for your needs.
No-Fee Banking Providers. Ally Bank, formerly GMAC bank, offers 24/7 phone-in customer service (chat is also available) and receives an above-average rating from hundreds of customer reviewers on its own website. Reviews posted at My Bank Tracker are less effusive, citing problems such as difficulty making electronic deposits, opening accounts, and transferring funds, as well as unhelpful customer service agents. Still, the no-fee banking options are a powerful inducement to sign on. The Interest Checking Account, for example, requires no minimum opening deposit and no monthly fees, regardless of the balance. The current APY is 0.40% for balances less than $15,000; higher amounts push the APY to 0.75%. Although Ally doesn't field any ATMs of its own, the bank reimburses all ATM fees incurred when making withdrawals in the U.S. Finally, Ally Bank offers free online and mobile banking with Bill Pay and Popmoney services.
A lesser known online bank, Bank of Internet USA, offers many of the same services as Ally Bank in addition to the promise of a much higher interest rate. The no-fee banking Rewards Checking account reimburses ATM fees nationwide, does not charge monthly maintenance fees or require a minimum balance, and offers free mobile and internet bank services (including Bill Pay) and Quicken FinanceWorks, which helps track your spending. The no-fee banking account, which requires a minimum $100 opening deposit, has a variable APY depending on monthly account activity. The starting APY is zero but each of the following actions is rewarded with an additional 0.3125% APY for the month: receive direct deposits of more than $1,000, pay two bills using online banking, make one to five purchases using your debit card, and make at least six purchases using your debit card. In total the APY can climb as high as 1.25%, which is 125 times higher than the 0.01% offered through the Regular Savings account at Bank of America.
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No-Fee Banking for Travelers. Although the Schwab Bank High Yield Investor Checking account only offers a variable 0.15% APY, this is the best no-fee banking deal for world travelers. To open a Charles Schwab Bank checking account, you must first open a brokerage account; neither requires a minimum balance or assesses monthly service charges, and both offer free online banking. You can easily transfer all the funds in the brokerage account to the checking account, although both accounts must remain open. Like the no-fee banking deals discussed above, Charles Schwab Bank reimburses any ATM fees at the end of the month, but unlike the other two, this applies to ATMs worldwide, not only within the U.S.
No-Fee Banking Limitations. These no-fee online accounts come with one severe limitation: it's difficult if not impossible to make cash deposits. The financial institutions all offer free direct deposit services and provide envelopes to deposit checks through the mail, but mailing cash is never advised. With Charles Schwab Bank and Bank of Internet USA you can deposit checks by snapping a picture of the check with a smartphone, and along with Ally Bank, you can scan check images and make a deposit online from your computer.
Charles Schwab Bank offers a simple solution to the cash deposit dilemma: Put the cash into your Charles Schwab brokerage account at one of the branch locations and then transfer the funds to your checking account online. That said, this is a non-starter if there's no nearby branch. State Farm Bank, another online bank with no-fee checking accounts (a minimum $25 initial deposit is required), lets customers deposit cash through special deposit-sharing ATMs.
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Another method for dealing with the cash issue is what we'll call the "two bank accounts" approach: Maintain one account with a local bank or credit union where you can deposit cash and initiate online transfers, and a second with an online financial institution that offers no-fee banking with a good interest rate and ATM-fee reimbursement. Research the available options in your community, but note that federal law limits monthly withdrawals from a savings account to six before penalties kick in.
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