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Plan Well, Retire Well

Saving and investing your money

Is it time to trade in my checking account?

Like most people, my basic money management tools include a checking account, an atm/debit card, and a few credit cards. Lately, I've been wondering whether my current tools are still the best ones for me. Maybe you'd like to look over my shoulder as I evaluate whether changes are needed.

Let's start with the checking account. How I use this account has changed quite a bit over the years. The terms and features of the account also changed about a year ago when my bank failed and was taken over by another institution.

How I use the account

  • My paycheck is automatically deposited.
  • I make almost all my other deposits at the ATM.
  • Many of my bills are automatically deducted from the account.
  • I never pay with a debit card; I make most of my purchases with a credit card that I pay off each month.
  • I download my checking account transactions into money management software that I use to balance my account and track expenses.
  • When I need cash, I make a withdrawal at the ATM.
  • I get lazy about moving any excess cash into a savings account. It would be easier if I could just keep it all in one account.
  • I rarely go to a teller.
  • I write maybe 2 checks a month.
  • I keep the required minimum deposit.

What does this tell me?

  • The physical location of my bank isn't very important, as long as I can use a convenient ATM to deposit a check or take out cash.
  • A minimum balance requirement isn't a problem.
  • Paper statements or returned checks aren't needed.
  • I would benefit from a higher interest rate, since I'd like to keep my "cushion" in this account.
  • The ability to download transactions into my money management software is important.

My current checking account isn't a bad match for my needs, but it pays a typically low interest rate. So I investigated some of the high interest checking accounts I've seen advertised.

  • Some of them would not allow me to download transactions into my software, so I crossed them off the list.
  • They all limit the balance on which they will pay the advertised interest rate, but the limits are at least $10,000 and some are $25,000.
  • They all require at least 10 debit card transactions a month, which would require a major behavior change for me. I typically make several small purchases each month using cash. If I use a debit card for those, I should have 10 transactions per month. But I'll have to monitor each month to be sure, until I get a pattern established where I can be confident of meeting that minimum.
  • One bank also required that my debit card transactions add up to at least a certain dollar amount. I'm not willing to track my debit card transactions that closely, so that one's out.
  • In any month I don't meet the requirements, I will get an interest rate comparable to my current account, but there won't be any fees.

What are the risks? These accounts are all FDIC or NCUA insured, so my money won't be at risk. I might fail to meet the requirements for the higher interest rate in some months, which would cost me interest. But I would still be ahead financially compared to my current account. There's always a possibility that the bank will lower the rate in the future, in which case I might need to move my excess cash into a CD. (One bank guaranteed its rate until sometime in 2012, but its requirements would be more difficult for me to meet.) But I think this switch makes sense for me, and I think I'll take the plunge.

I still need to assess whether the credit cards in my wallet need adjusting, but I think I'll save that for another day.

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