The benefits of online checking accounts (also credit unions)

By Jimmy Fuentes

Howdy folks, it's been awhile, hasn't it? I do this awkward thing where I leave for awhile and make a comeback out of nowhere. I'm trying to become more consistent with uploads but lately, I've been hit with a case of writers' block. I have also been working on some other projects for the site. (no it's not an excuse, I'm just saying there lies fun reads ahead.)

Needless to say, I'm back and ready to talk more about money, finance, banks, investing, and business. 

 Capital One home screen on bank accounts

Capital One home screen on bank accounts

Let's talk about a personal favorite of mine, banks, more specifically, online banks. GOD, I'm absolutely in love with such banks as they offer higher interest on your savings accounts (sometimes your checking accounts) have no monthly fees of any sort, some don't require a minimum balance in your account, and they are super easy/convenient to use. They are far better than well-known banks such as your bank of America, Wells Fargo, Suntrust, etc. who charge you fees. In short online banks >>>>>>> big banks. Here's why:

Fees, fees everywhere

Comedian Louis C.K made a stand-up skit on “being broke.” Louis talked about how he only had $20 in his bank account, later that day, he ends up having a conversation with his banker on how his bank account was below the agreed minimum balance, or the amount of cash you must have in your account before a certain deadline. (Usually at the end of every month.) The banker proceeds to give Louis a fee of $15 leaving him with $5 left in his account. Louis discusses his frustration by making a comment “why am I paying from my own money to have my money in the bank?” and asks if the audience can relate to such scenario. Surely enough, you hear numerous applauds and many “YES!”’s being yelled out. I can only presume that you too have had about enough with your bank, constantly taking out YOUR money for silly reasons. Of course, some of these silly reasons are justifiable, but can still be avoided overall. Silly reasons include: not using your debit card a certain amount of times, not making a sufficient deposit this month, having a negative balance in your bank account without anyone warning you that you were about to reach a negative balance, using an ATM, or not having the minimum balance in your account. Perhaps this is your first bank account you’re applying to and don’t know where to begin your research or what bank is best for you and your financial goals. Banks love it when you’re new to gaining an income and start building a net worth without knowing the many fees, it’s how they make their money.

Worry not, as I will relieve such burdensome fees or perhaps get you into a bank that has little fees that won’t place a dent on your finances.

Understand, your bank doesn’t dislike you, remember, a bank is a business at the end of the day, it needs to make a profit to continue providing services and hand out loans to stimulate the economy. They must somehow fund their brick and mortar locations, provide loans for people who want to purchase a home or can use the capital to fund a business/company. Plus, when you accidentally overdraft, at this point you’re borrowing money from the bank to fund your purchases, essentially, you start owing the bank money you don’t have. I, however, still want my readers to flee from such banks or avoid the fees. It’s just not worth the headache. This can make your journey to financial freedom easier or harder. It’s best to evade the fees and find a bank that has low or no monthly maintenance fee or fees in general, this, in turn, can save you a lot of cash over time. Furthermore, this cash can be used for other purposes.

This is nice and all, but if I switch to a different bank, how much money can I potentially save over time?

According to NerdWallet.com, you can spend, on average $1,000 in a decade on just fees alone. This calculates and takes into consideration the average of all ATM fees, monthly maintenance fees, and overdraft fees from numerous banks and looks at how much people have spent on each fee. This is only just the average, remember, you can spend way less or way more than $1,000. Hold on a second, you might be thinking, “well, $1,000 over a decade doesn’t seem as much or as bad as I thought it would be. It’s okay for me to just pay the fee and call it a day.” Three things: 1. Stop thinking this way. 2. If you proceed to think this way, you will catch these hands. 3. While $1,000 spent over a decade or $8.33 every month doesn’t seem “as much” think of it this way. Had you invested $1,000 in that decade in a low-cost index fund that had an average return of 8% year after year, and reinvested your dividends every quarter, your total would be roughly $2,200 after that decade was over. So, while the $8.33 paid a month doesn’t seem as much now in the short term, in the long haul, however, it slows you down in the process of being financially free, with the help of compound interest, the money could have grown to something significant. In the next few sections of the article, we’ll discuss each fee individually and how to avoid them in the near future. This advice, however, should only be followed if you make a decent salary and don’t live paycheck to paycheck, if you do live paycheck to paycheck, however, then I suggest you leave your bank that constantly takes money from your checking account every month and find one that has little to no fees. After all, using every cent is beneficial and in your best interest (GET IT? Cause you earn interest on the money you place aside? haha) and not have it go to your bank.

Monthly maintenance fees.

You can spend about $10 - $12 on monthly maintenance fees, which equates to about $120 - $144 every year, or $1,200 - $1,440 in a decade. Fortunately for you, these fees can be evaded majority of the time, it all depends on your finances and where you are banking. Most banks require a certain balance amount to be in your account on a daily basis. This balance can range from $1,500 - $20,000. Another way majority of banks can waive your monthly fee is by making a deposit or direct deposit. The deposit can range from $250 - $2,500. However, like I mentioned earlier, if you live paycheck to paycheck or are a recent college graduate that has little to no net wealth to your name, then I suggest you leave your bank sooner rather than later. (More on what bank to choose in a bit, for now, let us continue talking about how banks screw you over… I mean… fees.)

Solution: The online savings account and credit union I am currently in, thankfully, has no monthly maintenance fees, normally when you’re opening a bank account, the fees are disclosed then and there. The banks' website might have a tab that discusses fees if you see any monthly maintenance fees on what should be a free checking or savings account, throw a flag on the play, and avoid that bank like a plague. If you think you can manage to waive the fees month after month, then power to you, continue working with your bank. Otherwise, it’s time to pack your bags and head elsewhere. All you have to do is your due diligence and research. 

Overdraft fees

You receive overdraft fees only when your account balance has reached a negative balance. At this point, the bank can either transfer money from your savings account, credit card, or any funds available under your name, into your checking account to fund your purchase, in doing so, you will get a fee. If you don’t have any funds at all, then the bank covers the cost of the purchase entirely, you still pay them back whenever you decide to deposit some money. The fee itself can range from $12.50 - $38.50, on average, it’s about $34.

Solution: Again, like your monthly maintenance fees, these can be waived by you either making a sufficient deposit to cover the cost of the transaction before the banks disclosed deadline, transferring the money yourself before the banks specified deadline, have an alert sent whenever your balance is low, sign up for overdraft protection, if you attempt to make a purchase with your debit card, the card will simply get decline, or just be wary and conscious of the amount of cash you have in your bank account. Overdraft fees are the most common fees people pay the most out of all three fees.

The credit union I am currently with offers overdraft protection, it SHOULD be free if your institution provides it. If not, then I only recommend using it IF you tend to overspend more than the amount of money that is in your account. (I’ll also ask you to cut it out! Stop spending money you don’t have) If you’re consciously aware of how much money is in your account, then avoid using the service that should be free. Overdraft protection will be especially useful for folks who live paycheck to paycheck. If you have a nice chunk of wealth and think you won’t overdraft, then once again, power to you, and continue working with your bank.

ATM fees

Possibly the least scary fee out of the three, the average person spends around $2.50 in fees if they use ATM’s in the U.S and about $50 for using an ATM abroad that is not supported by their financial institution.

Solution: The only way to evade the fees is to do your research on where your institution allows you to withdraw your money and from what ATM, talk to your banker about where you can withdraw currency abroad, or have enough cash on your person so you won’t have to use an ATM.

Hey, you know what time it is? Time to discuss my credit union, who refunds me the money I spend on ATM’s, yup, it’s that awesome that every time I use an ATM that isn’t supported by the financial institution, it just refunds my money at the end of every month. It’s super rare to find a bank that offers reimbursement for ATM fees. 

Where can I find these fees?

You can easily find fees listed on your bank’s website, the fees should have also been disclosed when you were opening your account. You know, the numerous sheets of paper you were given AFTER you opened your account that you might have (most definitely) thrown away?

Where do I suggest you bank?

Enough about me bragging about my credit union, you can have such bragging rights once you join your local credit union. Why am I so anal about you being in a credit union you might ask? Well, according to bankrate.com 72% of all credit unions have no balance requirements or any maintenance fees. However, be very wary when joining the credit union as the bank ATM’s are only in your area. When I say, “local credit union” I mean “REALLY local.” Check to make sure that the bank supports withdraws from ATM’s nationwide if you travel often. Also, bank through an online bank, as I mentioned before, the only reason why banks charge fees is to fund their brick and mortar locations, nowadays, everything is done through the World Wide Web. Banks such as Ally Bank, Capital One 360, Bank5 Connect, and Discover. They all have their ups and downs as all banks do, but, in comparison to any other big bank, you can potentially save big bucks by switching to these banks as they all have one thing in common, they don’t have any monthly/maintenance fees and no minimum balance. Bonus points if you can find a bank that gives you interest on your checking account!

Ally Bank

Ally Bank provides 24/7 customer support/service if you have any questions and or concerns. You can send cash to anyone using their Popmoney feature, which is identical to PayPal, all you need is the person’s phone number or email address. Like other banks, you can deposit your check by snapping a picture of your check, however, if you’re fairly old school and not up to date with mobile deposits, then you can use prepaid envelopes to mail in and deposit your check. You have over 43,000 ATM’s to use for free nationwide. Lastly, you earn a great interest rate in your checking account. About 0.10% if your balance is below $15,000 and 0.60% on balances over $15,000.

Capital One 360

Capital One offers bank accounts for teens, the parent can view the kid’s transactions, and furthermore, they have free access to 38,000 ATM’s nationwide. Their interest rate is a handy 0.25%, they earn this rate on whatever their balance is. If you don’t have any teens, then don’t worry about what I just said, you can receive a great checking account as well for the folks older than 18. There are over 40,000 ATM’s to use for free nationwide. From the start, you receive 0.20% interest on balances of less than $50,000 earn 0.75% interest on balances of $50,000 - $99,999.99 and 0.90% interest on balances over $100,000.

Discover

This one is a doozy and quite the bargain for your account. Discover has a cash back checking program, where every time you make a purchase on your debit card, you earn 10¢ cash back, pay a bill through their site, 10¢ cash back, and every time you write a check, you guessed it, 10¢ cash back. With over 60,000 free to use ATM’s nationwide. The cash back program can give you over $120 every year.

Bank5 Connect

Bank5 Connect has their own rewards program as well, points that accumulate over time that can be used to purchase select items. If you decide to use an ATM not supported by Bank5 Connect, you can be reimbursed up to $15 for every statement cycle, or once a month. You earn a hefty 0.76% interest on your checking account only if your balance is above $100.

Where I bank

I personally have two separate bank accounts. One is meant to be used to pay off my phone bills, meals, and other purchases. The second account is meant to place my money aside either for emergencies, making a large purchase, or to later invest it. The bank I use for my everyday purchases is a local credit union. The credit union offers significantly outstanding interest rates for my savings account, a breathtaking 2% almost beating the average annual rate of inflation which is at 3%. The other account is a Capital one 360 savings account, which gives me a good interest rate of 0.75% and a Capital one 360 Money Market account, which gives me a 0.60% interest rate and will (hopefully) rise to 1.10% once it reaches over a balance of $10,000.

Closing statements

Search for a bank that is right for you and your financial goals, do your due diligence, never constantly switch banks because bank XYZ has better rates, or has fewer fees, or offers better rewards, and always ask the banker to disclose all fees. Remember, you might not (hopefully you can) find the perfect bank, but a bank that works just right for you.