Overall, customers seem pretty happy with checking accounts from Charles Schwab Bank: especially the part where you can deposit checks by mobile phone and have your ATM fees refunded. Dan came across a situation where online-only banking is not superior, though: when you need to deposit a third-party check. That is, a check made out to someone else, but endorsed over to the account holder.

I’ve been relying on Charles Schwab Bank as my only checking account for a couple of years at this point. I’ve been very happy with the service until now (they reimburse ATM fees, and provide great customer service), so I’m hesitant to complain–but I found this annoying enough that I feel compelled to do so.

Due to a complicated series of events not worth explaining, I ended up with a small check issued by a state government that was made payable to a trust fund that had previously been set up by my grandparents to pay for (part of) my education. Because the money in the trust had been exhausted years ago, before I even finished paying for grad school, the trustee doesn’t currently maintain a checking account in the trust’s name. When the trustee got the check unexpectedly, he endorsed it payble to me and sent it to me to put towards my student loan debt.

I endorsed the check, and immediately deposited it in my Schwab Bank account on my phone using their (otherwise very handy) mobile banking application. I shortly thereafter got a message saying the check was rejected because it wasn’t payable to an account holder. I was confused, because it had been endorsed payable to me.

I called, and was told that Schwab Bank “isn’t equipped” to handle “third party” checks (i.e., checks written to a third party that are then endorsed to the account holder) but that they might be changing this at some point in the future, but that there was nothing they could do now. (The customer service agent was very polite; it was clear the problem was with the Bank’s policies, not their customer service).

I am pretty annoyed. Cashing a check that is endorsed to the account holder seems like a basic service that one would assume all banks would offer; I can’t imagine what kind of “equipment” Schwab would need to make this happen. Because I’d been so happy with Schwab, I’d gotten rid of my other checking account, and now I don’t have a way to cash this check without opening a new account at a real bank. I thought I’d pass this tip along, so that people that are thinking about switching completely to an online-only bank like Schwab might realize there are services that the online bank won’t be willing to provide. I still would recommend Schwab Bank to my friends, but I might discourage people from canceling their other accounts unless they have to.

Update: Dan sent us a note in response to some comments here. It’s not a question of using the mobile app: Charles Schwab won’t accept third-party endorsed checks through the mail, either.

Some people in the comments on the post of my previous submission are misunderstanding–Schwab won’t accept third party checks, even if you mail them in. It’s not an issue with the mobile app; it’s just a service they won’t provide, period

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