One of the biggest myths of the financial industry is the “free” checking account. They have high minimum balance requirements, offer 0% interest, and have other annoying requirements. The worst part is that they’re not even free.
If you kept $5,000 at a free checking account earning 0% interest, you’re giving up $100 in annual interest that you would’ve received at a bank offering 2% (that’s the yield you could expect from a high yield savings account). The bank may not be charging you a fee, so it’s technically “free,” but they’re not giving you your due.
What’s the solution? Find an online bank that offers both a checking and savings account option. ING Direct is one bank that offers both. By having the two at a single bank, you can keep your money in a savings account and transfer it to the checking account only when needed, maximizing your interest.
I would continue to keep your regular brick and mortar free checking account so you can easily deposit checks at the branch. As soon as the checks clear, you can transfer them to the online bank to maximize interest. Online banks let you mail in checks but I always prefer to deposit it into an ATM or to give it to a teller.
It may seem like a lot of additional headache for a minimal gain, and that’s accurate, but who can’t use a little extra nowadays? I’d rather have the hundred bucks in my pocket than in the bank’s income statement.
Jim writes about personal finance at Bargaineering.com.