Everything you really need to know about checking accounts.

In this article:

• Why start with checking account?
• What should you look for in a checking account?
• Various types of fees associated with your checking accounts and how to avoid them.
• How many checking accounts should you have?
• Some additional tips.

Why start with checking account?

Selecting is good checking account is good way to start organizing your personal finance and to set the stage for better things in your personal finance.  (Which I will continue to help you with )

What should you look for in a checking account? How to select the best checking account?

Things you should consider are:

1. Does the checking account have any monthly fee?

It is crazy how many people are actually paying these fees. Almost all banks have ‘No-Fee’ checking accounts available if you maintain a minimum balance or do a direct deposit (or even without any of these requirements, see Some Additional Tips section). If you are on a payroll it should be easy for you to set up your direct deposit through your employer. If you are a student then many bank offer free student checking account without any requirements. Even if you are a part-time student, try investigating about this option.

2. Interest rate.

For long I was under the impression that checking accounts do not pay any interest (or a negligible rate of interest, at best). However after some looking around I found some high yield checking account and the interest rates were pretty high. They generally have some additional requirements but they can be easily satisfied and they pay anywhere from 3-5% interest rate. To find a checking account that pays high interest you can use a website like CheckingFinder or a list like this. This single piece of information can be a game changer for your passive savings and your emergency fund savings. This is also one of the reasons I stick my emergency fund in a checking account over a CD.

3. Accessibility and Convenience.

Things like, how convenient it is for you to go to the bank (if you have to)? Do they have online banking (nearly all banks have online banking these days and it makes sense to use it to cut down your visits to the bank).

4. Debit Cards.

Debit cards that are Visa, MasterCard or Amex can really come in handy at times. They will be accepted anywhere credit cards are accepted. Make sure your bank issues one of these to you. Some banks also have cash backs and rewards associated with debit card.

5. Personal relationships and community.

Banking with people in your community is great way to help your community. Consider local credit unions, they are easy to deal with and they play a role in the development of the locality. You can locate a credit union in your area using one of these two services,  Credit Union and Find a Credit Union.

6. Special rates.

Some banks offer lower rates on loans and higher rates on CDs to their checking account customers. I would suggest that you some research here and open a checking account with the bank if it helps you get a better rate just before making a large CD or getting a loan from that bank. Banks like Chase will take of up to 0.25% of your mortgage interest rate which can be substantial savings.

7. Security of your Money.

Is the bank FIDC or (NCUA) insured? Is the bank location physically in a safe area?

Various types of fees associated with your checking accounts and how to avoid them.

There are various fees a bank charges in association with a checking account. Some of these are:

a. Monthly account fee.

b. Overdraft fees: When you try to withdraw (or write a check for) more money than you actually have in your checking account banks will charge you a fee, unless you have an over draft protection plan. These can be exorbitant.  Some banks are really cruel when it comes to this fee. I read an article where a person was charged an over draft fee for a debit card transaction and then another over draft fee as the original over draft fee could not be paid…! (Thankfully it did not continue recursively).

c. Over draft protection fee: Some bank will scare you with the huge over draft fee and then tempt you in to paying a couple of dollars per month to avoid any over draft fees. Avoid accounts with such plans, there are many banks that offer over draft protection as a line of credit or will link it to the cash advance on your credit card.

d. Check writing fees: I have never encountered a checking account which actually charges this fee but I have seen some claim that they do not, this make me wonder that there might actually some banks that charge this fee (or it may just be a marketing gimmick..!)

e. Fees for check books: Some accounts come with unlimited check books, so no worries for them. While I would suggest that you perform most of your transaction electronically; so you would not need so many checks in the first place but not having to pay for a checkbook when you need one cannot hurt. If you do have to buy a checkbook then compare your bank rates with other online services, on average the later should be cheaper than the former. Do not spend money on buying fancy checks they are simply not worth it.

f. Bounced check fee: If you happen to deposit a check that does not clear for some reason, the bank may charge you a fee. It’s a double whammy.

g. (Out of network)ATM fee: When you use an ATM that is outside the network of your bank (generally your bank and any associated subsidiaries) you may be subject to two fees:

i.  The ATM machine provider charges you for using their machine.

ii.  Your bank may charge you for using an ATM out of their network.

h. Block check fee:  If you happen to write a check and loose it or if you have already given it out to someone and later decide that you do not want them to use it, you can ask your bank to block the check (i.e. only before the check has already cleared…!). The bank will also charge you a fee for this.

Banks are very creative with these fees and they actually make a lot of money by charging these fees.

How to avoid these fees?

Most of this is pretty obvious and just knowing about these fees will make you try to avoid them. So read about these fees or ask your banker about them.

The minimum balance requirement may be computed in different ways by different banks, some require a daily minimum balance and some require an average minimum balance over the month. If you do not know what the requirement on your account is; call you bank to find out…! Or you may assume it is a daily minimum balance, that way you are covered for both the cases. If you have to maintain a daily minimum balance, keep some more money in your checking account than the required minimum balance to allow some transaction to go through without actually going below your required balance.

How many checking accounts should you have?

This depends on your personal situation and how many accounts you wish to mange. Most of us should be fine with 1-2 accounts. I would suggest having two checking accounts, one with a high interest rate (even if the account is not very easily accessible) and one which is easily accessible (even if does not have high interest).

Some additional tips.

1. Never have more balance in your checking account than what is protected by FDIC coverage. Bankruptcies of bank come as a surprise and it may just catch you at the wrong time. If you do happen to have so much in cash consider splitting them in to accounts in various institutions so you are still under the limit.

2. If you are a married, then at least have one joint account and one independent account. Merging your finances can be a long process; a joint checking account will be a good start. Even if you have decided not to merge your finances completely, it is still easier to have one for common transactions. An independent one can come in handy when you want to plan that surprise vacation for your partner and do not want them to become aware of it when they see the statement.

3. Checking account is great place to store some portion of your Emergency fund. However if you have a checking account that pays low interest rate (consider moving to a high yield checking account) do not put a lot of money in it as you will lose some valuable interest, instead keep the money in high yield savings account.

4. Some banks (like Bank of America) offer free checking accounts without direct deposit if you open them online. If you cannot satisfy the requirement for direct deposit or minimum balance then open such an account.

5. Many banks let you set alerts on your account in case of a withdrawal/deposit above a certain limit. This feature can be used as tool to enhance security and identify unauthorized transactions as soon as they occur.

6. Always look at your monthly statements to identify if the bank is charging you any fees or if there any unidentifiable expenses.

7. Getting all the factors right in a bank can be difficult, so get an account that fits most of your needs rather than trying to get the best and holding on to a really crappy checking account.

PS: This article was featured in the Carnival of personal finance #211.

This is a two part post covering the following topics.

Part 1:

What is an emergency fund?

Why do I need an emergency fund?

How much do I need to save?

Part 2:

How to get started?

How to invest your emergency fund?

What are the common pitfalls of emergency fund and how to avoid them?

How to get started?

So you know how much you need in emergency funds, but do you have that much allocated?

If you are well covered, then that’s great. That is like a landmark achievement in your personal finance history…! Now you can feel more comfortable to face any surprises life may present you with however if the number you came up with overwhelms you, don’t get worried, now is the time to start to achieve that number.

If possible you should devote most of your savings in the next few months towards building your emergency fund. If that is not possible or that will not be enough, start small, say by saving 10% of your salary, by not eating out for some time or by cutting down on your daily addictions, whatever works for you and helps you save a little extra, even if its $10-20 a week. Eventually you will find ways to save more or earn more.

• Transfer these savings in a separate savings account or a designated checking account on a regular basis. This is very important. If you do not separate out the money, you may not be able to save more.
• Do not use the money in this account for any other purpose but an emergency.
• Keep setting small achievable targets for increasing the funds, if you miss the target think about cutting back on some of your regular expense to cover up for it.

How to invest your emergency fund?

Congratulate yourself for coming to a stage where you can think about investing your emergency fund.  The key here is to keep your money accessible. Putting it in a designated high interest savings account or a designated high yield checking account is a good idea. This will help your emergency fund grow passively and you can focus on other financial goals.

Only if you have saved more than what you came up with as a number you need for your emergency fund you should consider other investments.

What are the common pitfalls of emergency fund and how to avoid them?

Resist any temptations to invest this money in stock market or mutual funds. Although they may be a good long term investment, they are very volatile in the short term and can lose you substantial amount of money. It gets even worse in times of economic turbulence when many people lose their jobs as well as take a huge hit in their savings which they had intended to use in case of emergencies.

Avoid putting these funds in long term certificate of deposits (CDs) as they are not very easily accessible and you may have to pay penalties to en-cash it before they mature.

Another common pitfall is that you may have created an emergency fund some time back and forgotten about it but as the circumstances in your life change, the amount of money you need in your emergency fund also change. So keep monitoring the amount you have in your emergency fund.

Rebuild your emergency fund as soon as possible after you have used some or all of it for an emergency. If you faced an emergency you would have realized how well this emergency fund served you, so if you have to; get started all over again.

Keep coming back to see tips some tips on how you can accelerate your savings and earn a little extra.

This is a two part post covering the following topics.
Part 1:

• What is an emergency fund?
• Why do I need an emergency fund?
• How much do I need to save?

Part 2:

• How to get started?
• How to invest your emergency fund?
• What are the common pitfalls of emergency fund and how to avoid them?

What is an emergency fund?

An emergency fund is the money you set aside to use when life presents you with unfortunate and unexpected events.

Simply put, emergency fund is the money you save in an easily accessible account so that it can be used to cover up for some expenses which you did not foresee or budget for; like a breakdown of your heating system, major home or car repairs or more unfortunate circumstances like job loss, major medical expenses, disability, accidents, etc.

Why do I need an emergency fund?

While I hope none of these events happens to you but none the less if you do make an emergency fund you will be in a better financial position to handle such an event. Many people seem to underestimate the chance of them having to face such a situation, especially young people, so if you are one of them, think again; Ask yourself, do I have enough saved up to cover for my expenses for some months in case of an emergency?

There are some psychological advantages to know that you have your back covered in unfortunate times, this will really help you live in a better way by relieving some of your stress.

It is very important, considering the critical nature of these funds I would recommended building an emergency fund over any kind of debt (even credit card debt, you heard me right…!).

How much do I need to save?

Unfortunately there is no magic number here but these guidelines should help you come up with your own number.

1. Calculate your regular expenses. Your regular expenses should include things that you generally spend on, on a regular basis. You could take an elaborate way to fund this out (like the one described here) but a back of the napkin approach works well too. Just add up the following:
   • Your monthly mortgage payments/rent and car loan payments.
   • Your monthly cost of insurance.
   • Monthly cost of essentials (groceries and travel).
   • Monthly miscellaneous expenses, like entertainment, shopping, etc. Your credit card (or debit card) statement should come in handy here.
2. On average you should save enough to cover up for about three to six months of regular expenses. This should help you in cases like job loss or a temporary disability.
3. You regular expenses will be higher if you have dependents that you support.
4. In general you will need more in emergency funds if you have more responsibilities and obligation to take care off. Just be sure to include all such expenses and then add a reasonable buffer on top of that.
5. Also make a list of expenses that you could quickly get rid off in an event like a layoff, say if you are an iPhone user, you could drop the data plan, or get rid of the extra channels in your cable connection. This might just come in handy. You do not have to write it down; just keep it in your mind. In general the more expenses you can cut down in case of a financial emergency the lesser you will need in emergency funds.

Part 2 here.

PS: This post is featured in the 209th Carnival of Personal Finance published at Living Almost Large

Great news people, I have been thinking a lot about the improvements I want to implement on this site.

In the following weeks you can expect the following:

1. A new look for the site.
This could be a new theme, a new logo or just an enhanced layout for the existing theme.

2. Exciting new and original articles.
I have drafted up some interesting topics on personal finance but they are not yet complete and ready to be posted. So lots of work required here.

3. Round ups.
I have decided to do periodic round ups of the best articles that I read on the blogosphere.

4. Memberships to blogging networks.

I will join some good blog networks in order to get some visibility and spread some link love.

5. A Secret..!
Yes you bet, I have a secret armor under my belt but this one requires quite some time and strategic move to be effective. So till then it remains a secret.

I have been tied up with the upcoming CFA examination and have temporarily stopped working on posts. I will start posting again from the second week of June.

Chase is a good bank and they have decent checking account if you direct deposit your pay checks but I for sum reason have not manged to get the best deals with them and my experience over time has worsened.

Chase Bad experience 1:

There was a promotion $125 floating around  for new checking account customers when I joined but I did not have the coupon with me, I walked in to the bank with one of my friends referrals to make use of it, the banker told me that unless the coupon was mailed to me specifically I cannot use.  I took the banker for his word and only to find at a later day that the banker lied and if I had persisted I could have got that coupon to be used for me. The problem was I need a checking account as I did not have any and wanted to add one in my company for my direct deposit.

Money lost : $125

Chase Bad experience 2:

The banker fooled me in to registering for a new credit card in the name of over draft protection. A credit card application is worth at least a $100 bonus or equivalent for me.

Money lost : $100

Chase Bad experience 3:

I received 2  Bonus tickets to US Opens for moving X amount of money to my savings account with them…! Now before you think how can that be bad, The tickets were priced at $40 each and were reported as  interest on my I 1099. Now I should have been aware of this but the banker did not disclose it.

Money lost : $20

Chase Bad experience 4:

When I moved some money to my chase account the banker upgraded me to a Premium customer which had some benefits but did not disclose any minimum balance requirement. Later when I moved the money the balance fell below the limit and I was fined $25 each time

for two months when I caught this in the bank statement I was furious. I asked them to reverse the fee whihc the rep did not do on the phone, so I had to Visit my bank, the banker only reversed one fee.

Money lost : $25

Chase Bad experience 5:

I before I was given the additional Credit Card by the banker, I already had a CC from Chase, but the terms were not so favorable, so I hardly used it.  I got a male from chase promoting a 0% APR balance transfer for 6 months. I did read the fine print but probably not carefully enough. The fine print was worded as follows. “No balance transfer fee“  (in bold) many other terms and then “Transaction fee may apply as specified in your card member agreement”.  For some reason I did not understand the full extent of that clause and ended up using the balance transfer with the intention of making some interest on my credit line. In the next month report I saw a $75 fee as transaction fee…! On top of it, there was a 13% interest on the transaction fee (which would not be much, but still) and any money I pay would first apply to my lower APR balance. This was the first time I understood the traps Credit cards issuers put in a Card memeber agreement.

Money lost : ~$80

So my Chase experience has cost me $350 till date. No wonder banks make so much money in fees. How much has your bank cost you lately.

PS: I have moved all my balance from Chase and am in the process of closing my accounts with them.

There are many resources like book, websites, courses, newsletters, etc on personal finance that teach you the methods of success in personal finance. These methods may be good and also practical but they may not necessarily be the best for you. You will always have to tweak them to suit your personal situation. No wonder it is called ‘Personal’ Finance and not ‘Generic’ Finance.

Principles are few; Methods are many.

The art is to master the principles and then apply them to your own situation and make your own methods. An opportunity lasts only for a while before it is public knowledge. Once it is known by all, it will quickly vanish; this makes it even more essential that you are always trained in principles not methods.
Here are the simple principles of personal finance:

1.Spend less than what you earn or earn more than what you spend
2.Make your money work hard for you.
3.Prepare for the unexpected
4.Take control of your money, career and destiny.

In some following articles I will walk through how you can apply these simple principles of successful personal finance to your methods.

I have been thinking about this for quite some time and have not come to a conclusion but I would like to share the though process.

Why Disclose:

I can gain the trust of my readers by showing them what I preach is what I follow.

This is very important to me. I want my readers to know what I will talk about is practical and can be followed and in fact I am doing it.

I can get valuable comments from readers which are more tailored to my current financial standings.
Everyone of you have something to contribute about personal finance, the source of knowledge may stem from your personal experiences , ideas or education and we can engage in a constructive discussion which will be mutually beneficial

In the examples I use, I can use my personal finance profile.
I will be more focused ‘on doing it right’ to hold face in front of my readers.

Why not disclose:

Everyone will know how much money I have..!

There is certain amount of comfort that goes with people not knowing exactly how much one you have. It is purely psychological but it exists.

I may have to discuss it with my friends.
Previously I had always dreaded a discussion on how much money one has and I may get a lot of questions and surprises.

My family members may not be cool about it.

Simple, from where I come, you do not carry a badge with how much your net worth is printed on it. This will make my family members uncomfortable.

It is very complex.
Being an immigrant, my personal finance is very complicated, my assets and liabilities are spread across two countries, two currencies.
People may evaluate my decisions purely against the money I have.
I may lose some negotiation power.

With people who know my personal finance standing and may have their own assumptions of what I can afford and I cannot afford.
Well the thought process is still going on, and I will update when I do make up my mind. Let me know what you think in the comments.

Who does not like to score a deal on purchases, whether you want to buy a digital camera, laptops, watches or a diamond ring these websites will help you get the best deals.

Caution: Deal hunting can be addictive, time consuming and pay completely avoid you from paying retail any time.

1. Slick Deals

An active community of users are always on the look our for the best deals. There are some frugal masters here who will actually come with ways to make money by buying stuff. Who can beat that.

Pros: Very active community. Great front page listing of the best deals of the day.

Cons: No cash back incentives.

2. FatWallet

A close competitor is Fat Wallet, the deals you may find on SlickDeals  and FatWallet  are generally similar but the later offers some neat cash back incentives.

Pros: Cash Back, better look and feel to the site.

Cons: Comparatively less active community.

3. Woot

One Deal, One Day..! The caption says it all, Woot.com has attractive prices on electronic items. The deals run for 24 hours or until sold out, whichever is first. They have sub dmains where the sell T-shirst (generally for $10) and wine too..! The sucess of the site has inspired many immitators to follow this model, including big names like Ebay and Amazon.

Pros: Good deals.

Cons: Majority items are refurbished. Best deals will not last lon.

4. Chrono Shark and Diamond Shark

Chrono Shark has some of the best deals on Men’s watches on the internet while Diamond Shark has some of the best jewelery (including watches) deals for women. Their format is similar to Woot.com, they too have a deal active for nearly.

Pros: Great deals. Low shipping costs.

Cons: Many repeats, at times the selection is not good.

Did I miss out on your favorites? Let me know in the comments.

I have a Comcast high speed internet connection and I am pretty satisfied with the service. The cost for it was  $33.99 (with taxes and rental for the modem~ $37) for 1 yare which ended in Jan 2009 and my internet cost shot up to $ 42.99 (with other fees it was ~ 47/month). I had a 6Mbps download speed plan with Comcast which was good as I download and watch a lot of streaming content but the increase in fee was hurting,  so I decided I will call them and try to get it down.

Attempt 1: Fail

In Jan 09, in less than 2 minutes the representative got me convinced that they could not lower my rate and the only way to lower my rate was to accept a much lower download speed ~ 1Mbps , which was for about ~29/month.

Attempt 2: Fail

In April 09, frustrated by the higher rate I was paying, I thought of giving this another shot. I got Windy on the line, who was not at all helpful and not at all aware of the plans Comcast had. I asked her for a discount/promotion/etc., she did not offer me any and also said that I could not downgrade my plan…! I just thanked her and was off in less than 3 minutes. I did not want to talk to someone s o unaware.

Attempt 3: Yippee….

On the same day, 5 minutes later I decided to give this a final shot,  I  had reached Windy by selecting the option of Cancel Service, I did not want my call to get routed to her again, so I selected the option of billing inquiry, hoping to get someone else, and I did, now I straight away told them I wanted to downgrade my service as I could not pay the high rate I am currently paying. This is how it went.

Rep: Sir, let me see how I can help you. Can you provide me with the telephone number associated with you account or your account number.

Me: (why would I know my Comcast account number, Gave my telephone number).

Rep: I see your monthly rate is 42.99/month but that is the best rate we are offering unless you are a new customer.

Me: I know, can you downgrade my account to a lower speed.

Rep: We have a promotional offer on 1Mbps for 6 months with a rate of 24.99/month. After that the rate goes to 33.99/month

Me: Oh, the speed sounds too low. Do you have some other plans?

Rep: Let me see Sir (goes away for 1 minute).

Rep: Sorry for the long hold. I can offer you 34.99/month for 6 months on your existing plan, if you would like to continue with the same plan.

Me: (Hell ya..! I want 6Mbps download speed, partly excited not trying to show) That does not save me a lot per month.

Rep: (Works out all the calculations, says)  For only 10 dollars a month more  (as compared to 1Mbps plan) you get 6 times the speed and you get nearly 20% off of your current rate. (I got an intelligent one..!)

Me: (With no more will to negotiate). Ok I guess I will take the offer of 34.99/month.

Closing comment:

Well I did not save a lot but ~ $7/month for 6 months (so ~ $42) that was a well worth conversation.

Did you ever try to negotiate your plan with your service provider? If not, then now is the time.  Let me know in the comments about your experience.

Welcome to eMoneyLog, A personal finance blog.