Saturday, April 01, 2006

Chasing the Bank Accounts Bogey and Illusory Float

Even a compulsive optimizer such as myself recognizes the futility of seeking out a static set of choices when it comes to bank accounts. There are plenty of people on, or, or a million other personal finance websites infinitely more dedicated than I am to every tiny nuance of maximizing interest rates, minimizing ACH transfer time, getting unlimited numbers of EFT's, and the like. I'm not. For once, I'm actively satisficing -- in my own fussy fashion, of course.

Some thoughts on desirable traits, frequent fallacies, as well as actual bank examples. My precise set of choices is NOT relevant to everyone, and I readily admit that.

People (at least those who post on personal finance boards) frequently overestimate the importance of marginal differeneces in interest rate. They fail to consider the magnitude of ultimate gains and losses if one bank is at 5.00% and another at 4.90%. Plenty of bloggers and personal finance junkies have long harped upon this fact, and a little simple math should prove it to you. I leave it as a matter of faith that if one has _that_ much money that needs to be kept liquid, FDIC insured savings accounts are already pretty silly, whether because one is likely in a high tax bracket and would be better off in products that are tax-advantaged in one way or another (Treasuries, general obligation pools of munis in mutual fund form, TIPS, and so forth), or because moving the money frequently results in a big chunk of 100% lost float during transfer time.

1.Again, the solution that most appeals to me, is finding a high yield account that can has checking privileges-- either an actual high interest checking account (Presidential, though it has a maximum amount or $25k; until recently, nBank's XL product), or else a money market account w/checking privileges account (eg, MBNA, though their rates are fairly crappy for smaller amounts). Basically, if you're really trying that hard to maximize float, the most effective thing you can do to increase float is write checks directly against that account. That, far more than flipping around from bank to bank (unless your check writing is dwarfed by total account size), will allow you to earn extra interest on float. This includes standard, checks take a few days to clear float, as well as unanticipated float -- if, say, your physical therapist normally deposits your checks immediately, but she doesn't bother to do so this month until 2 weeks have passed. (Alternatively, some banks will overdraft from savings to checking for no additional fee; these are worth looking into).

Search for some way of writing checks from the high interest account if possible, or else a free checking account that can be linked to the savings account and transfers $'s instantly -- something normally only possible with banks that offer checking, as well as high interest savings. (This knocks out perennial contenders -- and these days, market laggers -- such as ING, EmigrantDirect, etc.)

If one opts for a money market act w/checkwriting privileges, the standard 3 to 6 limitations on number monthly outflows still apply.

2.Obviously, one needs a core high interest, low minimum savings account. I value the low minimum since a high minimum effectively converts much of your investment into a pseudo CD -- even if one could move money out (and incur fees due to minimums), doing so would be akin to accepting a CD penalty (albeit at fixed, rather than variable $ cost). At the moment, I like HSBC -- $1 minimum, 4.8% rate. Yes, I know the rate is only guaranteed until the end of April, but
a)their rates before promotion were already competitive
b)a guaranteed 4.8% rate for X days, is actually a stronger guarantee than a 4.8% w/no guarantee (since most accounts can change their rates w/no notice unless a special guaranteed rate is in effect).

3.An ATM card would be nice -- Presidential, HSBC, CapitalOne, MyBankingDirect, and Citibank offer this option -- 'cuz sometims, you just need the cash...and if you happen to need a lot of cash, there's only so much you can take out from an ATM/given bank account at once, so maybe you should have a couple.

In fact, a VISA debit card is even nicer than an ATM card because it allows you to make purchases (typically, the amount you can buy per day is higher than the amount you can ATM out as cash -- and even if the amounts are the same, who wants to withdraw hundreds and hundreds of dollars at 3AM for a purchase early the next day?). MyBankingDirect definitely offers them, I'm not sure who else does.

4.ATM rebates: many banks such as USAA pay you back for fees incurred at other bank or neighborhood bodega ATM's, up to some limit ($15, in fees per month say). Note that USAA banking is open to all, unlike some of their insurance products, which are limited to servicemen and their affiliates, so give them a call. Also note that one definitely should opt for an _automatically_ rebating bank -- there are few things more irritating than having to submit, and resubmit receipts via mail to prove to your bank that you deserve a refund this month.

5.Brick and mortar branches w/high yield savings in my neck of the woods seems limited to a fairly small set of banks. Fortunately, both Citi and HSBC seem to meet these criteria . Technically, HSBC's account is totally online/automated phone transfers only, though you can get live assistance -- you are not supposed to go into branches and complain about your Online savings account -- but guess what, if you open a free checking acount, you can t0 link it to your online Savings account, and go in to the branch by using the checking account.

6.Sunday teller hours: Commerce Bank is probably the only reasonable candidate for this in NYC, and they offer a free checking account. (One of the few upsides to living and working in midtown, is that Chase, Wachovia, Commerce Bank, BofA, Citi, HSBC and probably several more banks are within 1 block of me.)

7.You want lots of ACH/account linking optionality to manage your house of bank cards -- HSBC's system is very well automated and allows unlimited ACH links (to the best of my knowledge). Manual/paper confirmation of linked accounts is a pain, so I try to avoid it whenever possible. Citi's transfer system is nice, but charges $3 for outgoing Citi-initiated transfers.

8.Stuff like online billpay, etc, almost always available w/any checking account: I'm not going to bother discussing such obvious features.

On the fringe:
1.Some heavy users might want a direct-deposit-capable business checking account -- apparently, some banks that require direct deposit to avoid fees, are beginning to ignore the standard ING/HSBC/etc $1, self-generated deposits. Presidential, for instance, actually checks the direct deposit. The customer rep I spoke with a while ago claimed that if I sent a direct deposit from a business account elsewher, even if in my own name, they would have accepted it.

2.Credit card deals/payoffs/balance transfers may be easier when card and account are both from the same company

3.Almost all online account aggregation sites are based on the Yodlee engine, which, while fairly comprehensive, is not _that_ comprehensive. I was fairly impressed by MyBankingDirect's aggregator, which actually had lots of unusual accounts aggregable -- InteractiveBrokers, for instance. MoneyHQ, I believe is the aggregating company.

My core money-management settings
1.HSBC online savings at 4.8% w/no minimum + free checking w/ATM and links galore and ACH transfer abilities.
2.Citi's new HY savings account at 4.5%(because Citi is literally on my block and I have a Citi credit card). Though no minimum is required, you must also have EZ checking. I conveniently also have a Citibank visa.
3.Commerce Bank's free checking account for Sunday hours.
4.I aggressively use my high interest Presidential checking account for all my bill payments, check writing, etc.
5.USAA for ATM rebates.

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At 7/27/2006 8:28 PM, Anonymous freedumb said...

Might want to consider a GMAC get check writing, ATM (no fee rebates though), competitive yield (4.97% w/ $500+), quick transfers...

I agree though, sometimes even I get wrapped up in trying to find the cheapest gas when I probably could save more by just going to the closer gas station that's charge a couple pennies more per gallon, but then again, if you think of life being like a marathon...each time you save a couple pennies, get a little more interest, buying generic drugs, ultimately will end up being a significant difference.

At 7/28/2006 4:30 AM, Blogger cellardoor said...

GMAC isn't bad -- there are other accounts w/similar services but higher rates, though also, higher minimums.

Another alternative is having an account that allows to you to connect your credit card or hi yield savings acct to your checking as overdraft protection, and doesn't charge you when you deliberately "overdraft" your checking account. USAA is a good eg, but not sure if they're taking new applicants.

At 10/02/2007 12:59 PM, Anonymous Anonymous said...

Just use fidelity smart cash checking account. It lets you overdraft from Money Market funds, and FSLXX has a highly competitive rate, often better than most banks even!


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