Where to Bank Online?

One of the main reasons we decided to start putting together a blog for people was because of the idea that you could make your money work harder for you, hence milking it. One of the best ways to do that obviously, is to put your money into a high interest bearing account so that the snowball effect of compound interest will, eventually, accumulate more than what you spend.

The easiest place to start something like this is online. NOTE: Any rates we discuss are active at or near the time of writing, please be mindful of the dates. Lets take a quick look at some of the major players:

ING Direct
They have a wonderful marketing campaign and very secure clean online banking interface. Their rates have dropped since the Fed has dropped rates across the board but what can you do to prevent that? Here are the rates for the different tiers they offer for an online checking account:

Balance....................................... APY*..

$0 - $49,999.99.......................... 2.25%

$49,999.99 - $50,000.00 .............3.75%

$100,000.00 + ............................4.00%
APY*

Now I am sure you are thinking, I will never have $100,000 in my checking account to get access to that percentage rate. Well you never know and you can still use it as a bench mark for other online banks. ING does not have a minimum to start an account, has a debit Card, free ATM access (32,000 select locations), free electric checks, automatic protection from overdraft, and is of course FDIC insured. ING has also recently merged with Sharebuilder but the accounts are not connected (yet?). There is also no real convenient way to deposit checks. Read more here.

Schwab Bank High Yield Investor Checking

Schwab has had some changes as of late. I found their online banking to have a huge interest rate and I was very tempted to try them out, but was left with a bad taste in my mouth as they required a $3,000 minimum to deposit. Now I see as I write this article, the minimum has gone away and the interest rate has dropped from a little over 5% to the now 3.01% for all sums in any account. The other features that are inherent with ING, are also shown here, for example, no ATM fees, free online checks/bill pay, etc. There is no way to deposit (like with ING) with them however unless you mail in a check or if you have direct deposit. So your paycheck is ok but if you get a check from someone else you'll be mailing it in. Read more here.

Bank of America Online Banking

BofA is known to be the largest bank in the US and it just might be. They have more locations that I know of and seem to doing very well for themselves, regardless of the financial crunch out there. I make this statement about BofA and not the first two because they are more of and esatablished brick and mortar, lending type of bank. Not to mention the huge bailout that they are attempting with Countrywide. That is another story however, we have quite a bit to say about that in a later post.

Over all, the online banking experience was a bit of a disappointment, with respect to interest rates in the other checking accounts. They have virtually none for checking accounts and for savings, if you maintain $300 or $25 deposit every month, theres no charge with an APY of 0.20%. Wow. That is compounded daily and paid monthly. They nickel and dime you for not maintaining minimums. They do comply with Check 21 (as do all financial institutions, effective October 28, 2004) where you can, supposedly, scan both sides of your check and send it in to be processed/deposited. BofA's website was lackluster in toting that as a feature however. Not sure if they are running into problems with that. Either way, they are just a regular bank and have virutally no interest rates on their checking platforms. Read more here.

That's about all for now, check back soon for another slew of online bank reviews. $

Wachovia's "Way2Save" and Bank of America's "Keep the Change" Saving Programs

The personal savings rate in the United States is around 1%, an embarrassing number for one of the richest countries in the world. Why aren't we following the saving generations that came before us? We can think of a few reasons: ARM mortgages, easy access to credit, ipods, 5+ year car loans, and rising college tuitions. As this troubling trend of insufficient savings continues, banks have created new ways to encourage saving, but should you enroll?

Wachovia's Way2Save
Wachovia will automatically transfers $1 from your checking account into a special savings account each time a purchase is made with a Wachovia check card, an online payment is made or an automatic draft takes place. Wachovia will contribute a 5 percent annual bonus in the first year and a 2 percent annual bonus each of the next two years, up to $300 annually.

Bank of America's Keep the Change
Each time you buy something with your Bank of America Check Card, they will round up your purchase to the nearest dollar amount and transfer the difference from your checking account to your savings account. Bank of American will match your savings for the first 3 months, to the penny. After that, they will continue matching 5% a year until a maximum of $250 per year is reached.

Deal or No Deal
Whenever a bank is offering free money, we tend to get a little leery, as is the case with these programs. While they are both are attractive on their face, we have have determined the possible problems outweigh the rewards for most people.

Problem 1) We mentioned in an earlier post the significance of creating and sticking to a monthly budget, both programs make this much more difficult to do. How are you supposed to stay within your created budget when money is constantly and sporadically leaving your checking account? Wachovia's program takes a $1 out for every purchase, I would be willing to bet the number of purchases most people make in a month is a higher number than the amount most people currently budget into their savings. Meaning, you can't save what you can't afford.

Problem 2) Overdraft fees are a pain and as I understand these programs, banks are going to cash in on us. Say you saved $100 this month using Bank of America's Keep the Change program. Congratulations, but hopefully there’s something left in your checking account when you go to make your next purchase. These programs make it nearly impossible to keep track of your accounts, unless you are checking them online daily. The last thing you want to do is pony up $30 in an overdraft fees because the money originally in your checking account is now nesting in your savings. If you choose to participate in these programs make sure if your account goes overdraft it then pulls from you savings at no charge (but if this happens, what's the point?).

Problem 3) These programs can give people a false sense of security. Just because you are enrolled in a savings program does not mean your financial planning is over. We fear people are going to have an "I'm saving more by spending more" attitude.

Conclusion
To really encourage savings, banks should make an effort to encourage people to shop wisely, stay within their budgets, and treat savings like a utility bill. Unless you are one that is very disciplined and can use these programs only to your advantage and not the banks, should you choose to enroll. $

Milk Your Economic Stimulus Rebates

The U.S. House of Representatives and the Senate have finally passed H.R. 5140, an economic stimulus measure that will put money into taxpayer’s hands. President Bush is expected to sign the bill into law in the coming days. The IRS thinks they should get the checks in the mail sometime in May, which leaves us plenty of time time start thinking about how we should spend this unexpected income.

How Big Will My Refund Be
Most families should expect to receive a $600 rebate for each individuals in the family that filed taxes last year that made at least $3,000 and less than $75,000 a person. An additional $300 will be included for each child in the family. Low-income people, including retirees on Social Security and disabled veterans who pay no income taxes, would also receive checks of $300. For those making over $75,000 a year, your rebate will be phased out as appropriate. In other words, we are not sure how much you will get; let us know when you get it.

It’s Patriotic to Splurge

When the checks are mailed in May, I'm sure it will be considered patriotic to splurge in order to burst our struggling economy. As fun and tempting as this may sound, it's probably not the best idea for most of us. So how should your family spend your extra $1,500? The answer for many depends.

Credit Card Debt

Are you one, like many, that has accumulated credit card debt that you can’t shake? Perhaps this refund will be a good place to plop your money. If you haven’t already done so, you should call your credit card company and request a smaller interest rate. I just recently did this and saw my rate drop from 21%to 9%, for just simply asking! Place your refund on the card with the highest interest rate, even if this amount does not pay off the balance, it will save you hundreds if not thousands in long-term interest payments. To become wealthy you have to stop paying interest and start making it, this is a great place to start.

No Savings?

Having a savings of at least two months of living expenses is recommended for everyone. It's ideal to have this money in something you can access very easily like a money market fund and not in assests such as individual stocks or a mutual funds. Even if you have built up debt to pay off, it may be best for you to put your rebate in savings. It's better to have a back up in case something unfortunate happens, although less debt is nice, you will not be able to make payments on anything if you lose your source main of income and have not built up a solid savings.

Pay More on Student Loans or Mortgage?

Although it sounds like a good idea to post an extra $1,000 on your mortgage payment or on your student loans, in reality this will not do much for you. Most mortgages and student loans have interest rates are around 5-9% (the lowest APR loans you can really get), although a lump sum extra payment on these accounts will be beneficial, the benefit is very minimal. If you are going to pay more on these loans, do it monthly with a goal of paying off the loans in x amount of years sooner than your current loan requires.

Max Out an IRA

We realize your rebates will not be in your hands before April 15, 2008 (the last day you can contribute to your 2007 IRA), but consider putting some of your rebate in your IRA for 2008. Sound boring, well it is, but consider this, $2,000 invested today growing at 8% annually would give you $21,871.46 in 30 years. Ah yes, the power of compound interest.

Treat Yourself

Making smart financial decisions everyday should be a top priority for you, but every once in awhile we deserve a treat! We would suggest taking about 20% of your rebate if this is reasonable for you, and buy something you have wanted for a while, perhaps a small flat screen for your bedroom or piece of art. I recently put a small LCD TV in our bedroom and I consider it the best art hanging in our place!

Like any unexpected windfall of money, what to do with it depends on our current situation. You'll have to take a step back and look at where the money can work best for you. Have some good ideas we didn't mention? Let us know about them! $