Why You Should Close Your Savings Account and Bank Online

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Why You Should Close Your Savings Account and Bank Online
Alamy
By Odysseas Papadimitriou

Checking is the new savings, according to a WalletHub report last month, which found interest-bearing checking accounts pay as much as five times more interest on balances up to $50,000 than savings and money market accounts.

But that only scratches the surface of the changes undergone by the banking industry in recent years, according to the report's findings. While certificates of deposit are still best for long-term saving, their interest advantage over online checking accounts isn't as substantial as you might think. For example, locking away $10,000 in a five-year CD will only get you 0.98 percent, on average, compared to 0.53 percent from the average online checking account.

A hierarchy has emerged for checking accounts. The average online checking account charges less per month than the average full-service checking account ($4.34 vs. $5.07) and offers 119 percent more interest (0.54 percent average percentage yield vs. 0.25 percent APY). What's more, 39 percent of online checking accounts are interest-bearing, compared to just 11 percent of traditional checking accounts.

What we have, as a result, is a new age of banking where online checking accounts are at the top of the food chain. Consumers unhappy with their cash-based interest earnings should therefore consider moving their reserves into a new online checking account, especially if they are reticent to invest in the stock market. We all need to make our money work for us, after all, and traditional long-term savings vehicles aren't cutting it in the current environment.

But what caused this shift in banking dynamics, and is this the new normal or just a temporary trend? There are a number of likely contributing factors:

Low Fed rates. You can't expect much from long-term savings products when the Federal Reserve is keeping rates near zero to promote borrowing and stimulate the economy through increased spending.

Money crunch. People simply might not have enough money to be saving in any substantial fashion. The average household has $6,700 in credit card debt; 30 percent of Americans say they don't pay their bills on time; and insufficient savings tops the average person's list of financial concerns, according to studies from CardHub and the National Foundation for Credit Counseling. So it might just be that people simply have more demand for everyday banking tools like checking accounts than they do for savings-related products at this point in time.

Technological advances. It's cheaper for banks to have a website and a call center than physical branches and staff. William Demchak, president and CEO of PNC Financial Services Group (PNC),
told investors last year that the bank saves $3.88 every time a customer deposits a check via smartphone rather than at a bank branch. Now that Internet usage has become ubiquitous and people are used to doing many things online, financial institutions have the ability to close down some local shops. That at least explains the attractiveness of online checking accounts.

Regulations. Bank oversight has increased significantly in the wake of the great recession, with the 2009 Credit Card Accountability Responsibility and Disclosure Act, the Dodd-Frank Act and the establishment of the Consumer Financial Protection Bureau making compliance more difficult and costly. So, banks could be pushing checking accounts as a do-it-all-option for consumers to eliminate some of the overhead that comes with providing multiple accounts that serve similar purposes to a single customer.

Who knows what the banking landscape will look like five years from now? Sure, we can expect increased chip card availability, mobile wallet adoption and more prevalent use of online payment tools like PayPal. But judging from changes witnessed in the last five years, we're in for a lot more.

If there is one thing we should all remember, it's that labels and past performance don't always accurately predict future outcomes in the banking world.


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jodukepiryk

Why not just stash your cash in mason jars and bury them in the backyard? Makes about as much sense as this article does.

Don't spend all that interest money in one place. You're better off just saving your money than relying on meager interest earnings.

1) drop the smart phone and get a "dumb" one. Save about $50 per month. Get a low-priced tablet (e.g., Kindle Fire) or use your old iPhone as a wi-fi only device. Wi-fi is available everywhere; you really don't need to pay for cell-based data plans
2) call your car and home insurance company and tell them you want to go through all your coverage because you found another carrier that is cheaper. They'll probably help you "find" 10% off or more.
3) speaking of car insurance - An expensive policy from GEICO, Progressive, etc. is not needed. You can find one usually for less than $25/month from a place like Insurance Panda. If you spend too much on car insurance from one of those big companies, chances are you are simply funding their expensive TV ads with cute animals.
4) compare what your house is really worth to your assessment. Many assessments have never been properly adjusted down to reflect the market over the last 4 years. We cut our property taxes by about 20%.
5) re-fi your 30-year mortgage to a 15. The interest rate will drop by at least 50-75 bps, more depending on your current rate. The payment may go up slightly, but it is because you are paying off your loan faster. If it's possible, get the mortgage paid off before the kids go to college. At a minimum, have it paid off before you retire.
6) review your credit card bills for all the things you are paying $10-20 per month for that you no longer need. I bet everybody has at least a couple
7) drop all magazine (paper and on-line) subscriptions. If you look around, you can find comparable content for free.
8) review your investment portfolio for ways to replace higher fee mutual funds or ETFs with lower fee ones. S&P500 funds/ETFs shouldn't charge more than 0.10% in fees. Fees may be higher for specialty funds, but they are all coming down fast. If your company 401K uses high-fee funds, talk to the folks in charge. A difference of 25 bps in fees will mean a difference of about 5% in your portfolio value after 25 or 30 years.
9) and of course the most impactful -- never carry a balance on a credit card. If you can't resist, cut up the cards.

May 16 2014 at 1:09 PM Report abuse rate up rate down Reply
rence_reboredo

A great way to earn money nowadays is by doing oil trading. Google Bionic Traders to learn a strategy that really works. They have the most accurate method to use in order to become successful in trading the oil market.

February 25 2014 at 7:48 PM Report abuse rate up rate down Reply
toosmart4u

When this country went from industrial to service industry we shut out many good paying jobs for minimum wage jobs. Now how are they to save any money for retirement when they are having problems paying their basic bills?????? And we have a do nothing congress, under republican leadership, that is taking away benefits for the poor.

February 24 2014 at 2:58 AM Report abuse rate up rate down Reply
Seektruth50

I smell con, can you say game, crooks never cease to amaze me

February 23 2014 at 10:15 PM Report abuse +2 rate up rate down Reply
jl7503

Tried getting a loan for 0.5% lately? No way will that happen, but the fat cats aided by the politicos want and do get your money for nothing. And $6700 in credit card debt?!!! Gotta have it now, don't you? And 30 percent NOT paying bills on time and I would be willing to bet that another 45% has LESS than $10,000 put away for retirement.....not to mention NO "rainy day" funds whatsoever to replace a shot water heater or refrigerator.....small wonder we are broke and will stay that way....CORPORATE GREED and LACK OF SELF CONTROL and SELF MANAGEMENT!

February 23 2014 at 9:15 PM Report abuse +1 rate up rate down Reply
Kensdelrey

The only good place for your money to be.....Is in your own safe place at home. and although it is not "safe" there either, It is much safer than having it out there where you cant get you hands on it immediately. this world has gone insane and Mr " fakeconomics" is a good example of how crazy people have become

February 23 2014 at 4:51 PM Report abuse +2 rate up rate down Reply
ncrespi

Oh, sure, it's bad enough to have computer crashes, but not taking any chances when my savings account is part of it on there@!

February 23 2014 at 3:19 PM Report abuse +5 rate up rate down Reply
William D Tipton

Less than 1 percent return?
No thanks.
Invest in metals and make some real money.

February 23 2014 at 2:47 PM Report abuse +2 rate up rate down Reply
toosmart4u

Martha and perry, if you have a 401K plan it is safe from the government, not too sure about the republicans. Here is an example, bush jr. took over a trillion out of the social security trust fund and replaced the money with treasury notes, yup, very low interest, really hurt the account. Now the social security administration is cashing in the treasury notes and the GOP does not like that. The GOP says they could use the money better in different areas, scary.

February 23 2014 at 2:33 PM Report abuse rate up rate down Reply
josephwpritchett

Keep your money in Your pocket and your gold and silver hidden..Anyone stupid enough to do online banking is just asking to be robbed by a hacker or the gov with some contrived "national emergency"..At least if someone wants to rob me he will have to weigh forfeiting his life to do so.

February 23 2014 at 2:15 PM Report abuse +5 rate up rate down Reply