Four Accounts You Need, Four Accounts You Don't

It’s easy to manage your finances when you close unnecessary bank accounts and credit lines and chisel down to the bare essentials. Blueprint For Financial Prosperity has compiled an excellent list of accounts that you need, and accounts you should avoid.

Accounts To Have

  • High Yield Savings Account: These fully-liquid accounts can earn 4% APY, often more, without any risk.
  • Checking Account: Necessary for paying your bills and making ATM withdrawals. Blueprint For Financial Prosperity thinks the two should be separate: a checking account with a credit union, and an ATM account with a major bank – but we prefer to keep the two together.
  • Retirement Account: Roth IRAs are the best way to save for retirement, unless your company offers a 401k matching program.
  • Credit Card: Yes, you should have a credit card – one that offers rewards and a low APR – that you religiously pay off each and every month lest you undermine your other financial planning efforts.

    Accounts To Avoid

    • Store-branded cards: The APR on most store-branded cards outweighs any short-term benefit, like: “10% off today’s purchase!”

    • Finance Accounts: Don’t buy appliances on the installment plan. If you need a loan, go to your bank.
    • Additional Checking or Savings Accounts: Unless you are approaching the FDIC insurance ceiling, stick with one bank.
    • Reward-less Credit Cards: If no reward programs match your needs, choose a card that offers cash back; just don’t miss out on the fun altogether.

    Five Accounts You Absolutely Must Have (And Four You Don’t) [Blueprint For Financial Prosperity]
    (Photo: edwaado)

  • Comments

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    1. balthisar says:

      Everyone talks about online, high-interest checking accounts in this new day and age, but overlook this classic account: The Ford Interest Advantage (formerly Ford Money Market) account. Currently paying 5.61% for balances up to $15,000, and progressively higher for balances over that.

    2. iMike says:

      Disagree re: store cards. Often easier to get and you can nearly always get 10% off any purchase (including sale-priced purchases).

      Best practice is to work your best deal on a big-ticket item, get the card for an additional discount, PAY THE CARD OFF (some people skip this step), and close the account.

      The Sears card is worth keeping open as it offers an additional 10% a couple times a quarter. Other cards may have the same feature.

    3. nweaver says:

      Once you have more than $10K plus in LONG TERM savings, you probably also want to consider a brokeridge account (eg, Schwab, ETrade, whatever) that doesn’t have any fees.

      Long term (10+ years), Index funds have been very high yeild.

    4. chortik says:

      @BALTHISAR, FMCC is not FDIC insured, it’s not a bank account, it’s private investment into the ford company.

    5. tentimesodds says:

      You also need an IRA, and a 401k if your company offers one. And you need to be putting automatic deposits in both.

    6. fredmertz says:

      If you pay your balances every month, it doesn’t really matter what the APR on your credit card is. You should just focus on the rewards.

      The Ford account is an investment in Ford Motor Credit, which is somewhat better than Ford Motor Company, but not much. The current yields on the Ford Motor Credit debt is slight above 8%, so you’re basically getting screwed if you do this deal.

    7. adam2dot0 says:

      Correct me if I’m wrong, but I believe FDIC insurance is $100,000 per person, not per account.

    8. adam2dot0 says:

      I was wrong. Lol, but try figuring out how much coverage you do get. Nothing is simple with Uncle Sam… [www.fdic.gov]

    9. r.chard says:

      Why must this site continue to recommend using credit cards. While there are a good number of people who can and do pay their cards in full, the vast majority of Americans statistically can’t or don’t. Points and miles are nothing but a silly game for the majority of card holders.

      Debt is becoming a very serious issue in this country. As said by one of my favorite advise columnist Dave Ramsey, why borrow money you don’t have to buy something you don’t need to impress someone you don’t like?

      Dump the debt and cut the cards!

    10. speedwell (propagandist and secular snarkist) says:

      If I pay my credit card off every month without fail, then you’re right, I don’t care what the APR is. However, the various policies and fees on even good cards are so discouraging and abusive that I don’t have any trouble gathering envious looks and comments when I say I don’t use credit cards.

      OK, so say I did want to get a credit card? How could I find one with decent policies and reasonable fees, even if the APR is above market? Is it possible to avoid being ripped off if you have “insufficient creadit” and for that reason have had little success applying for installment financing in the past?

      I’m not interested in the type of card where you tie up hundreds of dollars as collateral. I’m actually doing pretty well without a credit card (for the past 15 years, no less). But you guys usually give out pretty decent financial advice, and I feel good at the moment about the longevity of my job prospects, so I’m willing to give it a trial run. Where should I start?

    11. eldergias says:

      Are you sure about not getting store credit cards? When I receive my credit reports, they tell me that one of the areas I am lacking is the diversity of my credit, such as no store credit cards. So I have been debating if I should get one and which one.

    12. aviationwiz says:

      I’d say for the most part I agree, but go with a bank with a local presence for your checking, and HSBC DIrect for Savings. HSBC Direct offers 5.05% APY on their Online Savings account, which is quite impressive.

      @SPEEDWELL, I personally like American Express for credit cards. Perhaps take a look at their Clear card, which is the one I have, I think it’s great, because of the automatic rewards and free once a year credit report and score.

    13. rich815 says:

      >>>>>Everyone talks about online, high-interest checking accounts in this new day and age, but overlook this classic account: The Ford Interest Advantage (formerly Ford Money Market) account. Currently paying 5.61% for balances up to $15,000, and progressively higher for balances over that.

      Except it’s not a bank account, nor insured by FDIC! Of course it’s paying higher interest!

      From the site:

      The Notes issued under the Ford Interest Advantage Program are unsecured debt obligations of Ford Credit. They are not insured by the Federal Deposit Insurance Corporation, and they do not constitute a bank account. Ford Interest Advantage is not a money market mutual fund. As investments in the debt of one company (Ford Credit), the Notes do not meet the diversification or investment quality standards for money market funds set forth in the Investment Company Act of 1940.

    14. tentimesodds says:

      @adam2dot0: You’re wrong. $100k per bank.

      “The basic insurance amount is $100,000 per depositor per insured bank. Certain retirement accounts, such as Individual Retirement Accounts, are insured up to $250,000 per depositor per insured bank.”

      [www.fdic.gov]

    15. tentimesodds says:

      @tentimesodds: Heh, I should RTFA.

      If only I didn’t get phased out for the Roth…

    16. TVarmy says:

      @iMike: But doesn’t opening and quickly closing credit cards hurt your credit score? Why not just try to get store cards without annual fees, then pay off the cards and never use them again? Maybe even cut them up so thieves can’t get at them.

    17. Thrust says:

      Big time disagreements with the 4yes/4no they list.

      Accounts To Have
      - High Yield Savings Account: Only if you have money you aren’t using (ie, not living hand-to-mouth or paycheque to paycheque),

      - Checking Account: Agree with this one. The typical dumbasses who don’t have one of these are either the morons who don’t realize how much more they pay in transaction fees for using a savings account like a chequings one, or idiots who use payday loan type places for cashing their paycheques. The latter probably never show up here… Probably can’t read either, or they’d have read the terms of that service and said “Fuck you bitch, I ain’t givin ya 30% of my cheque just to cash it, I’ma gonna gets me a real bank account”.

      - Retirement Account: Don’t ask my advice on retirement plans, I won’t live long enough to cash one, so don’t make em my business to know about.

      - Credit Card: Need a card, yes, the one they mention, no! You can trade the reward-earning bullcrap for one that has an even lower APR. All fine and dandy to have a second card IF you have the self control not to max it. Use that second card to earn whatever retarded rewards program you’re after and pay it off monthly or transfer the balance to the lower APR one.

      Accounts To Avoid
      - Store-branded cards: LIES! These cards are the backbone of youth credit, and gateways to cheaper purchases. When a person is starting out, Visa and Masturbatorcard will not give them credit, but Sears or Zellers WILL. Thats HOW your credit record starts. Keep a clean record, pay it off on time, etc. Once your credit is good, get the Visa and close the other. Then pick ONE store that you like to shop at, that has a creditcard, and gives some kind of reward for using said card. Use the card for the discount/reward, pay it off before any interest charges build up, and keep the card open for a good long time. Great credit for having the same card for a long period (if you keep the report clean). Just don’t open a damn storebrand card with every place you shop. Keep it down to one or two.

      - Additional Checking or Savings Accounts: Seriously, you only need one account with one bank for your day to day crap. This one stays a do-not-need.

      - Reward-less Credit Cards: Again, lies. Your primary card SHOULD be a no-reward, lowest interest possible card. After that one, no you don’t need more cards.

    18. iMike says:

      @TVarmy: No. Aside from the obvious (late pay, chargeoff, bankruptcy, high balance to available credit ratio), the things that reduce your score are a) applying for new credit and b) average account age.

      If you use the store card technique in moderation (a few times a year) there will be no material impact to your rating. If you close your newest accounts (e.g. the store cards), you’ll minimize the impact to average account age.

    19. tobashadow says:

      I havent had a store card or standard credit card in over 5 year’s and trust me i dont miss them. The only thing i owe on is my house, and it’s getting double the ammount sent to prencipal each month to fast track it.

      Try that to be secure with your finace’s.

    20. a_m_m_b says:

      @adam2dot0:
      @tentimesodds:
      more or less. go here to learn the details – more or less – details @ [www.fdic.gov]

      do keep one extra checking somewhere. that way if anything should happen (dispute, theft, etc.) you still have a bank while it’s being resolved.

    21. krunk4ever says:

      @balthisar: money market accounts are higher risk in the fact they return isn’t guaranteed. I mean certain mutual funds have consistently been pulling in 10% or higher increase a year, but they’re not as safe as savings accounts. Neither are protected by the FDIC either.

      I’d also like the refute the following:

      Store-branded cards: If you are a good with dealing with finances, there’s no reason to be afraid of higher APRs on store-branded cards. You usually tend to just get the card for the nice sign up bonus and never use it again afterwards. Then you have certain cards that give you a higher % back when you use the card n their stores.

      Finance Accounts: If you have the money, why not sign up for a finance plan which gives you 0% interest for 6 months or a year. What this really means is that you should dump that money into a high yield savings account for the duration and when it’s time for the interest of the finance plan to kick in, you pay it all off immediately.

      Additional Checking or Savings Accounts: There are certain reasons why you would want multiple savings or checking accounts. First thing is convenience. Depending on where you work, live, frequent to, ATM machines that give you access without fees might be limited. You also don’t want to pay that $5 out of network ATM access fee.

      Next, you typically want to have one checking account you let everyone connect to for depositing money and another account for storing that money in. That will prevent others from pulling out a large sum of money when not authorized to.

      Also, when one bank mistreats you, it’s a lot easier to move all your money out of the existing account into somewhere else really fast.

      There are also other non-overlapping perks such as 1 account allows free bill-pay while the other gives free checks.

    22. jendomme says:

      In general, this is good advice. As others have mentioned before this is really geared toward those who have self-control.

      I disagree with a couple of points.

      – Two banking accounts: Why bother with the trouble of two statements? Just stick with one account and transfer money to and from your online account.

      – Credit cards: Cards with rewards are typically tough to redeem. Sure, there are cards that are great, but don’t be fooled by the reward program. Just pay off your balance and be done with it. Remember, it is always better to use your credit card than your debit card. With the CC card it is the CC company’s money at risk when you make purchases, not your own which is the case when using a debit card. Keep that in mind when you shop online. For me, I use an Amex card. The $90 a year fee is worth it when I can call at any hour and get someone who speaks english and has the authority to correct any problems associated with a transaction.

    23. balthisar says:

      Well, yeah — if you’re going to do Ford Interest Advantage, you’ve got to understand all the fine print and risks. But we’re talking about liquid accounts with easy access. You get checks, online bill pay, ACH transfers free of charge, instant wire transfers for a low rate. You only have to keep your eye on the news to make sure Ford doesn’t declare bankruptcy (turnaround is working well), but if so, do a quick wire transfer. I only presented it as an option because it works for me for liquid capital (key here!), and pays some damn good rates for what it is. Don’t ever put all your eggs into one basket. ;-)

    24. fredmertz says:

      It doesn’t pay good rates for what it is. You’re being robbed of 2%. You are taking 8% risk for a 6% return. Ford is taking advantage of individual investors because the professionals are smart enough to know that they require 8% to offset the risk of the Ford Credit debt.

    25. stanfrombrooklyn says:

      Avoid rewards cards. Study after study after study shows that when consumers get rewards cards, they increase their credit card spending on entertainment, meals, gasoline, and almost every category of purchase. There’s something in our brain that says “Go ahead and put that round of drinks on the card. You’ll get miles.” But for almost all consumers, the value of the rewards is much much less than what they end up paying in fees, interest, and just increased expenses.

      Get a low-interest card that offers no rewards. You’ll spend less and you can buy lots of cheap airplane tickets with the money you’ll save.

      Of course everyone ignores this advice because they think they’ll be the rare person that pays off their credit card statement in full every month. And some do. Most don’t.

    26. @Thrust: Hate to disagree, but low APR cards that forego rewards are for suckers that carry a balance. If you carry a balance, sure, opt for the lower APR card. But carrying a balance on a credit card is, for the most part, a very stupid move.

    27. balthisar says:

      @fredmertz: But you’re not getting ripped off because you’re not an institutional investor, and if you have portions in an institutional investor you’re getting that 8%. The great majority of my savings is in non-liquid funds that average well more than 6%, but for the liquid cash I’ll take the almost 6% before the so-called “high paying” 4%, for the known risks. You’re not being ripped off if you know precisely what you’re doing.

    28. @eldergias: Get Victoria’s Secret, they have all sorts of great underwear discounts for card holders. ;)

      No, seriously, go for a card where you buy a lot of basic business clothes (I have B. Moss; my husband has Men’s Wearhouse) because they’ll typically send you special cardholder coupons a few times a year and you can stock up on basics like white buttondowns or twinsets. It may not be where you go for your top-of-the-line tailored suits or whatever, but basics on sale with coupons are always a good buy and rarely do you have to have them THIS INSTANT so you can usually wait for the next special cardholder coupon. (B. Moss has special cardholder sales even! I love B. Moss!)

    29. e-gadgetjunkie says:

      I believe that some store cards are okay, it just depends on how they handle payments. My husband and I have a Kohl’s charge card that we use only when they have great deals (sometimes as much as 30% off) then they allow us to turn right back around and pay off the balance with a check there at the register. Same thing with my Victoria’s Secret card. They have great sales for card holders and let you pay the balance you just put on the card there at the register.

    30. Thrust says:

      @fivecentnickel.com: Um. Hmmm… My creditcard costs me 9.9% interest yearly. That’s 99 bucks for the year if it is maxed the entire time. On average I pay a third of that over the year based on how much I do carry as a balance. $8.25 a month to have an extra grand whenever I need it is a pretty good deal. I don’t see why I should my APR to the 27% BMO charges for a card with airmiles just so I may fly from Edmonton International to Edmonton Municipal after ten years of saving the points. Call me a sucker if you will, but when my clothes dryer died on me (one might use the term, exploded) I was between paycheques and had nothing saved. It will cost me an extra $25 tops in interest for using my low-APR no-rewards visa, but it means I have clean and dry clothes again.

    31. FLConsumer says:

      @Thrust: $1,000 credit limit? What can you buy for $1k that’s worth making payments on? At that point, save your money and buy it when you have the money. If you’re carrying a balance on your credit card month after month, then you’re living beyond your means.

      7.9% APR (regular, not a come-on intro rate), 1.5% cash back on my Visa Signature card. Paid off in-full every month, so it pays me close to $500-$1,000/yr. Gotta love reimbursible business expenses.

    32. JustAGuy2 says:

      @tobashadow:

      People who pay down their mortgages faster than necessary are suckers, unless they have incredibly unattractive mortgage terms. Mortgage money is the cheapest lending you can do, and leverage is your friend.

    33. joe6486 says:

      I’m glad these comments exist, because there are a lot of very bad articles giving bad advice.

      1. Savings – 4% sucks. Countrywide is 5.4% and eloan is around 5.15%. Why do people always miss these?

      2. Checking – make sure there are no monthly fees.

      3. Credit cards – don’t be a sucker, and NEVER carry a balance. You should be earning at least 1% cash back (or equivalent in gift-cards).

      Whoever posted that Ford account is a total idiot. It’s not a savings account, it’s an investment account, and a poor one at that.

    34. Thrust says:

      @FLConsumer: I only have a $1000 limit because the card is mainly for online purchases. I’m not living beyond my means, at 9.9% interest I really don’t care if I’m carrying a balance for a couple months since it’s what, $25 for three months. I just pay the whole damn thing off every quarter.

      @JustAGuy2: Paying down a mortgage early is one of the best things a person can do, just so long as they clear the car loan and all other debts first. Yes the interest rate is lower, but over such a staggering amount of money it is quite a dent.

    35. JustAGuy2 says:

      @Thrust:

      No, it’s really not a good idea, unless you’re (a) paying a very high interest rate on the loan, or (b) in a very low tax bracket.

    36. Karunamon says:

      Why so much hate on credit cards? If you can’t be arsed to:
      * Not charge more than you can pay off MONTHLY
      * Not pay the bills on time

      Then yes, don’t get a card, you are shooting yourself in the foot. For the rest of us, using and keeping a card paid is a great way to raise your FICO score. I think i heard on a report that carrying a small balance (i.e. not more than 25% of your limit) will raise your score faster if you’re keeping it paid off religiously. They like to see your credit being used responsibly, and this will help you out down the road when it comes time for a home or car loan, or any other important events like that.

    37. Cris says:

      I recently moved from a job with a matching 401k to a job with a non-matching 401k. I notice Carey stated that:

      “Roth IRAs are the best way to save for retirement, unless your company offers a 401k matching program.”

      For what reasons would someone choose a Roth IRA over a non-matching 401k? I’d like to know my options soon, as I’m still filling out my entrance paperwork.

      Thanks for your input.

    38. @CRIS: Typically the order of contributions should be matching 401k, Roth IRA, then non-matching 401k… to the max on each.

      So if you have a 3% match on 6% contributions for your 401k, contribute 6% to your 401k. Then contribute $4k to your Roth, then the rest to your 401k until the maximum. If you have anything left, treat yourself to a beer you forward thinking planner.

    39. Woofer00 says:

      @Thrust: I giggled a little on the inside when I saw your last comment.
      Your credit rating includes the amount of credit used when the billing cycle rolls around again. If you’re at $900/$1000, carrying that high 90% balance over month to month will slowly but surely eat away at your credit rating. Regardless of your abiliity to clear your balance, you should avoid carrying any substantial percentage month to month. Personally, I treat my CC like it only holds 1/4 of it’s true limit – protects the rating and ensures that I have a bit more when I need it. Ideally, you should never charge more than is actually sitting in your checking account at any given moment.

      That said, the converse is true for loans – the ability to maintain a loan and make timely payments benefits your credit rating, in addition to the tax bonuses justaguy mentioned.

      With regard to the difficulty of obtaining the very first credit card, stroll around a college campus during orientation/holiday season. Banks and CC companies are throwing the cards at pedestrians with bonus gifts. Not the best of deals, but extremely easy to obtain, and offer protections that store cards don’t always offer. Student AMEX is a breeze to obtain off a clean/new credit.

      All that having been said, here’s my two cents on the breakdown for the amount you should have in each acct:
      Checking/25% or less of your Credit Limit – Enough for your month to month needs.
      Savings/MoneyMarket/Liquid funds – Enough for six months living costs in case you lose your job/need emergency funds.
      Investment – Everything else you’ve got.

    40. fredmertz says:

      @balthisar: I love your logic — I know I am being ripped off, so that means I’m not being ripped off. People who know a whole lot more about Ford Motor Credit debt than either you are I demand 8% return to take the risk. You are willing to take only 6% to take on what is probably more risk, because if the sh*t hits the fan, I’m sure the bondholders would be in front of you in line to collect their money.

      You should go on prosper and loan money to poor credit risks — you’ll earn a much greater return.

    41. jesusofcool says:

      Questions:
      It’s seems very hard to find a good high yield savings account these days, unless you have 15-25 thousand to put in it. My ING high yield account has a low minimum balance and used to be 4 or 5%, but it’s dropped to 1.5% since the recession. Are there particular high yield savings accounts you have in mind?
      Also, I currently have 1 non-rewards credit card that I’ve had since I started building credit. How do you suggest people switch to rewards credit cards? Lots of people with limited or poor credit are having trouble being approved for a rewards card these days. Any ideas?