Making the most of your checking account

In the past, we've discussed the best online high-yield savings account, covered the basics of certificates of deposit, and even explored the beauty of Roth IRAs. But we've never talked about checking accounts.

Many people believe checking accounts are the dinosaurs of the banking world. They're not extinct yet. In the past few weeks, I've received two questions about them:

  1. “Where can I get the best rate on a checking account?”
  2. “How much should I keep in a checking account?”

Under certain circumstances a checking account can offer a better return than a savings account! In fact, there are a couple of ways to do it.

Online Checking Accounts

Though they're not as common as online savings accounts, I was able to find a few high-yield online checking accounts.

Mutual of Omaha Bank, for example, offers a high-yield checking account that is much higher than the average national savings account interest rate. Currently, the Mutual of Omaha Bank online advantage checking yields 0.50% per year.

This account comes with free Bill Pay and free ATM access to 22,000 ATMs.

Rewards Checking Accounts

Believe it or not, there's a way to earn even higher rates of return with a checking account. Many small community banks and credit unions around the United States offer a special “rewards” checking account, a product administered by a company called Kasasa.

Different banks have different names for this product.

Obviously, these rates are fantastic. There aren't many places you can earn a guaranteed 6% return on your money right now. Unfortunately, there are a few catches. These rewards checking accounts usually come with some combination of the following limitations:

  • You must receive your monthly statement electronically — not via snail mail.
  • You must log into your account at least once per month.
  • You must make a certain number (generally around 12) debit card purchases. (ATM withdrawals do not count toward this number.)
  • You must make at least one electronic transaction each month. These include automatic payments to your utilities, for example, or a direct deposit.
  • The rate only applies to the first $30,000 (or so) in your account. (The cap at some banks is $10,000; at others, it's $100,000.) The portion in your account above the cap only earns a tiny return.

If you use your debit card often, a rewards checking account makes a lot of sense. If you're clever (and have a lot of money), you could actually use both types of accounts I've described. Put your first $25,000 or so into the local credit union to earn five or six percent, and then put the rest into an online checking account at three percent. (On the other hand, if you have that much cash, you're probably doing something far more clever with it than parking it in rewards checking accounts!)

How Much Should You Keep in Checking?

This brings us, at last, to the second question about checking accounts. Chris wrote to seek advice on how much to keep on hand:

What is a good rule of thumb for a minimal balance in one's checking account? I already have a healthy emergency savings account, so my question is, how low should I go? I carry no revolving debt, and I am currently paying off installment debt (student loans), so I could get a guaranteed return on any extra money I put towards debt taken from my no-interest brick-and-mortal checking account.

The answer to this question depends entirely on the rates of return for the savings and the checking accounts, and how the accounts are used.

Though I have an Electric Orange checking account at ING, I don't actually use it for anything yet. I haven't fit it into my financial workflow. Instead, I use a normal no-interest checking account at my local credit union. Every month, I transfer a fixed amount there to pay the expected bills. The rest of my money earns interest in savings.

If I were to get my act together, I could transfer some money to Advantis to test their rewards checking account. I'm hesitant to put my entire emergency fund there because I don't know if I'll meet the “12 transactions a month” clause to earn the 5% interest. But if I transfered a small amount there and tested it for a couple months, I'd know for certain.

Now I'd like to hear from you folks. What sort of checking account do you use? Does it earn interest? How much? Have you tried one of these rewards checking accounts? How did you like it? Have you tried an online savings account? Or have you given up checking account altogether?

Checkbook register photo by lemonjenny.

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Luke
Luke
11 years ago

I have a checking account with Bank of America. It doesn’t have any interest rate, so we keep enough money in there to cover all our expenses for about two months. We have an ING savings account that I keep for longer term savings. Checking accounts are very useful with debit cards. They let you have the convenience of a credit card while still essentially paying cash. The trick is to manage your checking account well. Experience has taught me to never trust the balance on my checking account. One bill I forgot about, and whoops.. I’ve overdrafted! This is… Read more »

Diatryma
Diatryma
11 years ago

My credit union has a good checking account, a rewards one. A while ago, I was trying to get this whole saving and budgeting thing down, and needed something gaining interest. I looked at my bank, which had… nothing. I asked a banker, said I wanted a savings account, and got nothing that actually gained interest. I think the credit union was at six percent then. Plus a reward for referrals. I think every bank in town lost customers. It’s weird keeping all of my money in a checking account when I have a perfectly good savings account, but I… Read more »

WiseMoneyMatters
WiseMoneyMatters
11 years ago

I actually signed up for an ING Online Checking instead of Savings for that very reason. I have over $100,000 to deposit for the short term while I buy a house and wanted the best rate. This was it for ING’s offerings.

Doug
Doug
11 years ago

I have an online checking account at centurybankdirect.com that pays 3.35% APY with no minimums. Also you don’t have to have 12 debit card transactions like a lot of other banks. You also get a free order of paper checks so you are not limited to only electronic checks.

ekrabs
ekrabs
11 years ago

I’m very lucky in this respect.

I’ve got a checking that pays 5.01% APY and the only requirement is that you have to make 12 debit transactions per month. That and it’s only good for the first 50k.

Still, it beats just about anything else I can find out there.

EscapeVelocity
EscapeVelocity
11 years ago

Call me a dinosaur, but I still pay most of my bills with paper checks on a checking account with a negligible interest rate (I’ve made almost $6 on it this year). It’s where my paycheck is deposited, and I use it for paying my regular monthly bills, but don’t keep any extra money in it (I have a money market account at the same credit union that I can move some from if I run short, and I do also have overdraft protection if I don’t notice I’m running short, although of course there’s a fee).

Amanda
Amanda
11 years ago

I switched to purely ING banking for personal use. (My husband and I have a joint account with his bank).

I budget, but for peace of mind I try to keep my mental ‘zero balance’ for the checking account at 1,000. This means I try to not let it go below that point. It’s probably excessive, but it works for me.

AD
AD
11 years ago

I like to look at comparisons charts for all my finances because it gives me a good benchmark as to what is a ‘good deal’ plus I can then compare the perks on offer and choose accordingly.

I have to admit to checking deals and rates on a pretty regular basis (once a month or so) just to make sure my money is working well for me!

Tyler
Tyler
11 years ago

I bank with Schwab. The interest rate is ~2%, and their customer service is great. My savings is with HSBC Direct. As for how much, I keep around $2000 in there, minimum. I like to be able to write any normal check at any time of the month and not have to worry if I have enough money to cover it. I don’t want to have to consider the what-ifs. If my employer were to be late on a direct deposit, or a check I wrote were to be held on to for several weeks before being cashed, or a… Read more »

Cory
Cory
11 years ago

I recently noticed that PayPal is offering a debit card. This would allow you to utilize the money market account (currently at 1.87%)for standing balances and give you 1% cash back as well. I know this isn’t quite as high as what others are discussing but does anybody have any experience with this program that could tell me about it?

cory

lulugal11
lulugal11
11 years ago

JD If you have the Electric Orange checking account then you really should make the best use of it. Instead of using the no interest checking account to pay your regular bills like you mentioned…you should transfer that money into ING and send out your payments from there. It is FREE and they mail out a paper check to the establishment. If it is something like a credit card company, then Electric Orange sends them an electronic check…goes out the same day and clears the next. The paper checks are sent on the day you choose and get there in… Read more »

Dustin Brown
Dustin Brown
11 years ago

My banking is done 100% though ING Direct. I switched from Bank of America to ING about a year ago and I haven’t looked back since. I always got the impression that because BOA is so big, they didn’t feel much pressure to be competitive with their rates. The one thing I DID always like about BOA is their web interface for managing my accounts. It’s quite nice. ING’s is okay too, but it feels more like a dumbed down toy than BOA’s did. I’m happy with the rate on my Electric Orange checking account. I don’t mind not having… Read more »

Ian
Ian
11 years ago

I’ve had this conversation with people in the past. Personally, I don’t have the type of cash where it matters much whether I’m getting 1% or 2%. I contribute to 401, Roth, and Money market savings out of every paycheck, and the leftover I keep in a local credit union checking. The money is local, ATMs are free, its easy. Perhaps when my emergency fund and cash savings are substantial enough, I’ll start worrying about that extra 1%.

Daedala
Daedala
11 years ago

The ING checking account is also good for people who have problems with overdrafts. I know we’re not supposed to, but I used to try to budget so tightly that I did sometimes overdraw by a small amount. With ING, as long as it’s within your overdraft protection, there is no fee — they just charge a reasonable interest rate for as long as you are overdrawn.

However, when they send paper checks or electronic payments, those funds are withdrawn immediately from your account. It balances out.

J.D.
J.D.
11 years ago

@lulugal
Yes, I’ve decided that one of my goals for 2009 is to improve how I handle my checking accounts. I’ve become adept at moving money around in savings, but I haven’t optimized my checking. I have to decide which accounts I want to use, and how. I think my first step should be to put more cash into my rewards checking account, and then try to use it for some stuff.

Jack
Jack
11 years ago

The only reason I haven’t switched over to ING Canada fully is because a larger bank like TD Canada Trust offers me a student chequing account which is linked with my Student Visa. I have had an ING savings account for about 5 years which I use off and on to try and start a savings fund for myself – it has been mostly unsuccessful.

JimmyDaGeek
JimmyDaGeek
11 years ago

I have a number of savings and checking accounts. I have both ING checking and saving accounts. I use ING checking for online bill pay because it is so flexible and seems the most reliable. Except for a few early hiccups, I have never had an electronic check take more than 2 days to arrive at the payee. ING decides automatically whether a payee will accept an electronic payment. The ING savings account lets me transfer money effective immediately, so I can keep my money in savings to get a better interest rate. ING has an overdraft credit line that… Read more »

Don
Don
11 years ago

Do you earn that 2.9% on the whole balance? I’d expect that you only earn it on the portion over $50,000.

As an individual, I’d not keep more than $100,000 in a checking account because that goes over the FDIC limit. I know the limit was raised, but that was only for old money as I understand, not for new money.

Brian
Brian
11 years ago

I have a checking account at my local credit union with the minimum balance not to be charged fees. This is a convenient place to deposit checks, and by keeping an account there I hope to later transfer money back to them when looking into financing a house. I actively use Fidelity’s mySmart Cash Account. It only earns 0.60% interest, but it is convenient for me. It has no fees, refunds atm fees, free electronic fund transfers, free online billpay, etc. I keep ~$5k here to pay the bills, for emergency cash when traveling, and to buy lunch at the… Read more »

J.D.
J.D.
11 years ago

@Don Great question. First, a note: right now the FDIC limits are temporarily higher, in case that makes a difference to you. Second, here’s a snippet from the ING FAQ: Is there any minimum balance I need in order to earn the interest rate? No. All balances earn interest. If your balance is $49,999.99 or less, you earn a great annual percentage yield of 1.00%. If your balance is between $50,000-$99,999.99, your entire balance earns 2.90% APY; and if your balance is $100,000 or more you will earn 3.25% APY on your entire balance! This is a great checking account… Read more »

joejoeice
joejoeice
11 years ago

I know some investors want to keep as much money as they can in accounts earning a high interest rate. However, I feel it is also important to be realistic about needing a cushion. These days, banks are more ruthless than ever in hitting the customer with high fees if they go over. I would hate to see an investor keeping as little money in a checking account so they can earn 2% points more on interest in a savings account get hit with a $50 fee for an overdraft in their checking. One mistake like this wipes out years… Read more »

Glenn
Glenn
11 years ago

I got a checking account at a local bank in my area–when I started working and needed my own account, my mother put my name on one of her accounts, took her and my father’s names off of the checks and I started using the account as my own. (She did something similar for my older brother some years ago.) Because the family’s accounts are all linked and my parents always have some minimum amount in savings, we get Super Saver Checking–no account fees, free checks, free ATM usage (including waiving other baks’ ATM fees wherever an ATM for our… Read more »

javier
javier
11 years ago

This is really good info as I am in the process of opening a checking account. I tried Schwab High Yield Investor Checking but after a month of giving me the runaround they finally closed my account due to a “business decision.” What a slow and lousy service. I am now looking at Capital One’s Rewards Checking since I tend to use debit often. Thanks for the advice!

Carla
Carla
11 years ago

I have to admit, I never even knew that ING has a checking account option (though I have savings with them). We pay rent using paper checks since our landlord doesn’t accept debit cards and there are some things I still have to use checks for or pay in cash so I need paper checks and access to an ATM without fees. Ill look into ING though just in case I would like to leave my current bank (Citibank).

E
E
11 years ago

Please be very careful with Capital One. They deliberatly prey on folks with shaky credit who don’t read fine print. If that’s not you, you’re probably ok, but if it is be prepared for lots of fees and no recourse.

I don’t have enough loose cash to qualify for rewards checking most places, and I use too many paper checks to make ING practical. My sister loves them though. So I put my paycheck in my negligible-interest checking account, transfer a good chunk into savings, and spend the rest down to nothing almost every month.

TeresaA
TeresaA
11 years ago

I have a savings and an investment account through ING. I have a checking account and debit card through Nordstrom Bank. I earn one point for every dollar anywhere I use my Nordstrom debit card (even paying bills) and I earn two points for every dollar when I use it at Nordstrom. Each time I accumulate 1000 points, Nordstrom sends me a $20.00 certificate. This is my little “indulgence” or treat each month. I love shopping, I love Nordstrom, and this a great way to help curb and satisfy my spending appetite! I earn interest on the checking account, but… Read more »

Chris from St. Mary's
Chris from St. Mary's
11 years ago

I use a local credit union (switched from Chase this summer) and ING for savings. There is a CU somewhat close to me that offers 4.07% interest on their checking. There are two things stopping me from switching again: 1) I don’t normally qualify for membership, so I would need to make a $25 donation to Salvation Army in order to join, therefore obliterating some of my savings and 2) no option for direct deposit at work, although they’re starting to talk about it. I currently have $4000 in an emergency fund and am using sinking funds accounts to save… Read more »

Lisa
Lisa
11 years ago

I wrote about Advantis here a couple of months ago. My efund has been in my Fusion checking account there for almost one year and earning 5%. Advantis has absolutely amazing customer service…always friendly and helpful!! About 15 years ago, when I didn’t have much money and bounced a couple of checks, they suggested I get a small LOC to connect to the checking account to avoid the NSF fees. They automatically covered the checks and I only paid interest accrued on the LOC…usually under $1. In order to assure I use my check card 12 times in the month,… Read more »

Kim
Kim
11 years ago

First, I love the blog – found it recently and it’s been a huge help. We’re solidly “middle class” but living paycheck to paycheck, no savings… ugh, tired of it! Now we have ING savings, I’ve signed up with Mint.com, have a savings with our local bank, etc. We’re getting it in order, step by step, and I want to thank you for your help and thoughts and advice. On checking accounts, we’re considering switching to Bank of America because of the “keep the change” aspect of their savings account. Any experience that says that’s good/bad, or is there a… Read more »

Kathy B
Kathy B
11 years ago

Doesn’t the way that ING places a 7 day hold on the funds drive anyone (besides me) crazy? After YEARS of having the same electronic auto savings set up – still a one week hold on the money. Doesn’t matter to me on the savings as it’s not there to use very often anyway – but that’s the reason I personally won’t even consider putting my ordinary checking with them. I have an interest bearing checking account – currently getting 4% on balances up to $50,000. Requires . . . 10 debit card transactions per month One automatic ACH either… Read more »

Jen
Jen
11 years ago

I’m transitioning out of the ‘totally free checking’ account I’ve had for years, to a 4% interest ‘rewards’ checking at Monroe Bank & Trust (Detroit area). I am happy with them and now use MBT for 95% of my banking but haven’t yet ordered checks for that account. I maintain the old account with a minimal balance for occasionally taking change to their counting machine for free, writing a very few checks, or depositing a check (the nearest MBT branch is 25 minutes away). Not sure if/when I will close the old account since it is still convenient for those… Read more »

TeresaA
TeresaA
11 years ago

Kim Says: “On checking accounts, we’re considering switching to Bank of America because of the “keep the change” aspect of their savings account” You can “round up your change” yourself. My aunt taught me that over twenty years ago. If you spent $19.38 at the store, record it as $20.00. Kathy B Says: “Doesn’t the way that ING places a 7 day hold on the funds drive anyone (besides me) crazy?” This drives me completely insane! One of the things I love about my Nordstrom checking/debit account is that my money is immediately available. I have a lot of flexibility… Read more »

Cathy Denham
Cathy Denham
11 years ago

I enjoy reading your daily “GRS’
I too have a BOA checking account but opened an “igobanking” savings and checking account after reading some of your valuable info. Both these accounts only required a $1 minimum to open.
Om Friday I received an e-mail alert that their checking account(3.8%) interest has superseded their savings (3.28%) rate.
I also opened a checking account with Presidential bank, but have since closed it. They require a $1500 minimum, and their interest rate plummeted to a mere 2%

allen
allen
11 years ago

I have been considering switching my main spending to one of my local CU that are a part of this major checking-intrest thing as well. What’s been holding me back? Well, it seems weird to be trying to cut back on my spending, but at the same time making sure i spend at least 12 times a month. Yah, i know i will anyways (between groceries 1-2 times a week, gas, &c)… There is also the fact that i’m still gettig used to trying to save money, and i’m afraid that if put it into my checking i’ll be tempted… Read more »

Aaron
Aaron
11 years ago

Thanks for the link to the listing of Rewards Checking accounts! I recently switched from ING to a credit union that I was already a member of in favor of their Rewards Checking account. I didn’t know all these other banks/CU offered similar deals, but I plan to send the link to my friends so they can take advantage as well!

Greg
Greg
11 years ago

I think this article poses some interesting questions. I myself write maybe two or three paper checks per year. Everything is done via online billpay for the most part. Are checking accounts becoming obsolete? I mainly only have one for the ATM network access, but then again I don’t even really use cash much any more since most places take plastic.

Simon Hill
Simon Hill
11 years ago

As a slight tangent to the main topic I note that here in Australia the number of places accepting checks (or cheques as we call them!) has declined dramatically over the past 5-7 years and therefore most of us these days wouldn’t bother having an account with associated check book. People use cards mostly (both debit and credit) or cash. Bank Checks (I go to the bank, handover or withdraw money from my account and get a check from the bank in return) are required in some situations such as large $ transactions.

Carla
Carla
11 years ago

@Greg — it is an interesting question. As I mentioned in a previous comment, we rent (private landlord) and she doesn’t take plastic. I have certain medical bills that still doest take debit/credit card payments yet. The farmers market (where we do more than half of our grocery shopping) is cash only. A couple small, indie restaurants doesn’t take credit cards. Most public transit is still cash (especially buses). I think it will still be a while before checking accounts are obsolete.

Jonathan
Jonathan
11 years ago

@ Kim I currently have Bank of America’s Keep the Change, and I find its a great tool to advance savings. For the first 3 months they match every amount rounded up 100%, much like an employer IRA. After 3 months the amount is a 5% match. I use BoA for all my banking, because I am still young and in the process of starting my savings. They have all-digital tools such as portfolio management, which for a geek like me is a boon. I hate checks, and a paper trail so being able to track my assets, debts and… Read more »

Andy
Andy
11 years ago

Another one to consider is HSBC, like ING it has a 2 for 1 account feature in that it provides checking and savings features in one account. I did a review of both banks and while ING has a better “user” experience (confirmed by reader comments and other reviews), HSBC generally offered a better APY. Plus they have branches, which is good to resolve tricky issues.

Laurel
Laurel
11 years ago

JD – thanks for the list of rewards checking accounts! I just found a credit union that offers 5.15% and free ATM transactions everywhere as long as you have direct deposit, online statements and 12 debit card transactions a month. Already have/do all that so it seems like quite a good deal. I have an ING checking account but since it only earns 1% and my offline bank has free ATM transactions I haven’t really used it.

KS
KS
11 years ago

My wife and I have three checking accounts to our checking account ‘system’: 1) Oregon Community Credit Union: 4.05% on the first 100K. Requires 10 debits, 1 ACH, and 1 log on a month and to be signed up for electronic statements. We keep our emergency fund in there. Love the account. 2) Wells Fargo: PMA account required for 100 commission free trades per year. We keep $20 in the checking account. I don’t know the interest rate, but it is probably under 1%. 3) BoA: My wife had this account since she was 14 and it has sentimental value… Read more »

quinsy
quinsy
11 years ago

I use bankrate.blogspot.com to monitor interest rates. Because of BankRate, I spotted a deal for 6% interest on an account at FNBODirect. However, the interest rate only held for 2 months then began slipping. When it reached 3% I transferred everything out and now have it in a local credit union’s reward checking account which has all the rules you mention, but gives me 5.01%. I am storing up $15,000 emergency fund there, and I feel more confident the interest rate will last. The 12 debit transactions monthly is a bit onerous, but I love telling people I am getting… Read more »

Becky
Becky
11 years ago

Is there any problem with keeping over 100K in any one bank? What about FDIC? Is that a consideration? I thought that the advice was to not keep over 100K in any one bank due to that issue. (Chuckle, chuckle…it’s something I heard, not that it applies to me!):)

Jeff
Jeff
11 years ago

I know GRS loves ING, but I will vouch for E*Trade Checking. Unlike ING, they have free ATMs absolutely everywhere – even in Europe! You have to have an “in network” ATM to have your service fee refunded with ING. And just like the rest of them they have free checks and a competitive APY.

Shara
Shara
11 years ago

I am of the opinion that chasing interest rates with your checking account can be ‘penny wise, pound foolish’. My checking account and my saving account serve two completely different purposes. Rate of return is my primary concern with a saving account, but I have different priorities with a checking account. Ultimately you have to determine what your priorities are and then pick a financial institution based on that. Mine might look like: 1) Low cost 2) Good customer service 3) Ease of use (locations, hours, etc) 4) Rate of Return Your checking account must fit into your overall spending… Read more »

Anne
Anne
11 years ago

I’m torn. I don’t have direct deposit through work (boss was burned by electronic banking and now won’t use it for anything) so I need to deposit my paycheck every 2 weeks. I also need paper checks to pay the rent each month. Plus I like my local CU despite the low-to-zero interest rates. They’re local and friendly and helpful. Once my EF hits some arbitrary magic number I might consider moving that online but I’m waffling, high deposits can get me better rates locally too. Local banking is sort of comforting.

DollarDream$
DollarDream$
11 years ago

@ #33

I also like ‘Keep the change’ feature from BOA very much! In 9 months, it added upto $100 for me. I think it’s an excellent feature.

Miguel
Miguel
11 years ago

Great post J.D. I love your blog. May I add that ING’s Electric Orange account automatically comes with a Personal Line Of Credit used as overdraft protection for free. Although it does sound great to have, ING will have to pull your credit history which will ding some points off your credit score and there is no opting out of it.

allen
allen
11 years ago

@Anne: I would suggest you KEEP your local credit union, even if you added something like ING or FNBO Direct (that’s the one that is linked from GRS the most lately. 3.25% is pretty nice!). That way, you can still cash your check local. you can even keep some moola in there, to let you write checks for places you shop at that don’t take debit cards. However, you can ADD one of these accounts. you can have Big-Money-Online-Account (BMOA) to withdraw a fixed amount monthly into it’s own account from your credit-union/bank, and you’ll be fine. I agree with… Read more »

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