I recently put out a call for reader questions and want to say thank you to everyone who replied. It may take a little while to get all your questions answered but I will answer every question that I received.
Here is the first question:
I am getting ready to move to a new bank. I am looking heavily into Charles Schwab's new bank service with 4.0% interest with no atm fees, etc. Would you recommend looking elsewhere before continuing? Also I want a completely separate savings account and I am thinking ING. Again, any ideas here? Thanks!
I am not a banking expert nor do I keep up with all the latest banking trends and products. If you are looking for a specific recommendation I am afraid I may disappoint you. What I can do is help you with your process so you can be comfortable with whatever decision you make.
The first thing you need to do is define what you want from your bank. Based on your question, would I be correct in assuming that you want a low-fee, low frills, high interest account? If that is what you are looking for then I think you are on the right track. But there are some key factors I think you may be overlooking.
Both of the programs you mentioned exist only in cyberspace; that is there are no brick and mortar branches where you can transact your banking. Is that important to you? I know that most of my personal deposits anymore are done electronically but there are still occasions when I need to deposit a check someone has written to me. With an on-line bank you can mail in your deposit, but I am somewhat uncomfortable sending endorsed checks through the mail. Sure, they can be endorsed "for deposit only" but what recourse do I have if the post office lost my deposit? Sending all deposits via an overnight carrier or with some sort of registration would quickly get very expensive.
Is a relationship with your banker important to you? If so, you should avoid not only on-line banks but large multi-state banking conglomerates as well. Believe it or not there are still bankers out there who know their customers by name as well as needs. It was not long ago that I needed a quick loan for a significant amount of money. I called my banker and told him what was going on. He agreed that a loan was the best solution and told me it wasn't a problem. In fact, he asked if I wanted the money in my account that day. When I told him that was not necessary I asked him if we needed to do any paperwork. Of course he told me paperwork was required but he had the approval authority so that was not an issue. He said that if I needed the money that day he would simply drive to my office, have me sign the application, and then he would approve my loan and fund it immediately. I do think there is value in having at least one banking relationship. You never know when you may need to rely on it.
Why do you want your savings account at a completely different institution? I can think of arguments both for and against this. On the side of "for a separate savings", it makes it harder for you to transfer money from your savings in to your everyday banking account. This hurdle can prevent you from making a quick transfer and regretting it later. On the "against" side, maybe the barrier to easy transfer is not a bad idea. The harder it is for you to access those funds the less likely you would actually spend them.
Here is what I have set up for myself. Most of my banking is done at a locally owned bank with several branches. We have the basic checking account (two actually) which pay no interest, but have no fees either. As long as we use a network ATM (most of the local banks are on our network) we do not pay ATM fees. We keep our savings at another local institution. That means I have to physically transfer money from one bank to another. Something I can easily accomplish in a few minutes during business hours, but it takes two stops. That kind of bother makes me think twice before I transfer money from savings into checking. Depositing money into savings is easy… I just write a check and deposit it.
We considered an ING account but in the long run decided that the slightly higher interest we would earn (we have a very good deal on our savings now) did not make up for the opportunity to have a relationship with a banker.
In summary I see nothing wrong with the set up you are proposing, but I would suggest you find some way to get a low cost account at a bank branch where you can get to know your banker. Maybe I did not clearly answer this question, but I hope I gave you some things to think about.
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