When it comes to storing money and earning interest, banks are better than an envelope under the mattress. But checking accounts are rarely free. The Consumer Financial Protection Bureau found that checking account users pay an average of $4.66 in fees each month, not counting overdraft or insufficient-funds fees.
There are checking accounts that don't require a minimum balance or assess monthly service charges, though, and some that even reimburse ATM fees. Switch to one of these no-fee banking arrangements to save money and you may find it also offers better interest rates than accounts at large financial institutions.
Most no-fee bank accounts are offered by online banks that cut expenses by not having to pay a big staff, rent, and basic overhead to keep branch locations open. These savings are passed on to customers in the form of better interest rates, lower fees, and free services. There are also no-fee options at credit unions.
Three no-fee banking options in depth:
Credit Unionsoften offer good interest rates on loans and investments, as well as lower fees and free services. They are typically open to anyone or can be joined with a $5 to $10 donation to a charitable organization, although some do have strict requirements for membership. These nonprofit, tax-exempt institutions sometimes have checking accounts with interest rates as high as 3 percent open to members who use a debit card for purchases throughout the month, sign up for electronic statements, and make an online transfer or direct deposit into the account each month. Many offer access to ATM networks and reimburse ATM fees monthly. Search for a credit union on MyCreditUnion.gov or CULookup.com.
Discover Cash-Back Checkingmay be a good option for people who don't have a large checking account balance. There is no required minimum or monthly fee with the account but also no interest -- although accountholders earn up to $10 a month in rewards based on their activity, with each debit card purchase, online bill payment, or cleared check worth 10 cents. ATM fees are not reimbursed; instead, access is offered through Allpoint and MoneyPass ATMs, which have more than 60,000 locations nationwide. (Discover does not charge for using other ATMs, but an ATM's owner might.)
Online Banks.Ally Bank, formerly GMAC Bank, offers 24/7 phone-in customer service, no minimum balance requirement, and no monthly maintenance fee with its Interest Checking Account. Accountholders can withdraw money for free at Allpoint ATMs -- there are more than 43,000 nationwide -- and be refunded up to $10 each month for other ATM fees. The account yields 0.10 percent annually for balances less than $15,000; higher amounts push the annual percentage yield to 0.60 percent. Ally also offers online bill pay and Popmoney, which lets customers send and receive money electronically.
No-fee online accounts come with a severe limitation: It is difficult, if not impossible, to make cash deposits. (Similarly, although credit unions have branches where accountholders can deposit cash, they are often regional and have few locations.) The financial institutions all offer free direct deposit services and provide envelopes to deposit checks through the mail, but mailing cash is never advised. Many also allow deposits by sending a picture of a check by smartphone or computer, although there may be a dollar limit per deposit.
Two online banks offer a way around the cash deposit dilemma. State Farm Bank, which has no-fee checking accounts with a minimum $25 initial deposit, lets customers deposit cash through ATMs in other networks, including any ATM with the NYCE, Visa, Pulse, or Star logo. Charles Schwab Bank allows deposits of cash into a brokerage account at one of more than 325 Schwab branch locations and transfer the funds to the checking account online (both accounts must remain open). Neither company requires a minimum balance or assesses monthly service charges, and both offer free online banking.
Like some of the no-fee banking options previously discussed, Charles Schwab Bank reimburses any ATM fees at the end of the month -- and worldwide, not just within the United States -- with no limit to how much will be refunded each month. That makes the Schwab Bank High Yield Investor Checking account a good no-fee deal for world travelers, although it offers only a variable 0.06 percent APY.
Another method for dealing with the cash issue, albeit a somewhat complicated one, is keeping two bank accounts: Maintain one account locally to easily deposit checks and cash, and transfer everything (except the necessary minimum to stay fee-free) to a no-fee and high-interest account (online or elsewhere). A debit card linked to the high-interest account can be used to make purchases and withdraw cash from ATMs for free.