High Yield Checking Accounts are Still Solid

A little over a year ago, the market was nearly saturated with high-yield or high reward checking accounts.  Some of these offerings had us wondering if this was too good to be true, and how long it could be sustained.  We recently decided to take another look to see whether or not these rates have remained high over a year later.  What is surprising is that apart from one notable exception, the rates have remained high.  Yes, they have slid somewhat, but checking account interest rates have not fallen as much as the other account types.  They still yield more returns than the most attractive CDs (for more information on the various account types and how they are different from one another, you can refer to The ABCs of Rewards Checking).

The only bank that bucked the trend and cut its rates is Malvern Federal Savings Bank near Philadelphia.  In March of 2009, having a checking account there would have given you 5.01% APY, that figure has dropped substantially to 1.50% APY.  By contrast, the MAXimum Free account at Focus Bank, with 12 branches in Arkansas and Missouri, was and is now paying out a solid 4.51% APY.

In Oklahoma, AmericaNet and two jointly-owned banks were giving 5.25% APY last spring, and while they have cut this quite a bit, the current offering of 4.00% APY is still very good.   Until just recently, Bank of the Sierra, which has dozens of branches all over central California, was able to maintain a 4.51% APY, just a few months ago, they lowered it to 4.09% APY.  Union State Bank was at 5.01% APY last year, but has since cut its rate to 3.25% APY.  Union State Bank has 4 branches in Kansas.  In Tampa FL, Patriot Bank was at 4.01% APY last year, but is now down to 3.01% APY.  Apart from AmericaNet and Bank of Sierra, all of the banks mentioned now limit new accounts to their state or locality.

Basic Types of Checking Accounts

Should a person want to establish a checking account, he should do some research and look for attributes such as no hidden, ATM or bank service charges, what the minimal fees are for over-withdrawing, are there free lifetime checking and savings accounts, and if there is free online access.

Overdrawn Checking Accounts
Checking accounts are overdrawn when account holders issue checks of a higher face value than the balance of the account.  Banks will then charge overdraft fees.  Sometimes, banks will cover the checks and debit the amount on the account; other times the banks will reject the checks outright.  Unless the account holder has overdraft protection from the bank, he will likely have to pay a fee.  A holder may be overdrawn due to poor record keeping, where the holder may forget or delay to deduct the check amounts from his check register.  The chances of being overdrawn would then go up over time.

Account holders also make the mistake of anticipating their deposit will be posted prior to issued checks making it to the bank.  To ensure a holder as the funds to draw against his checking account, the banks institute some heavy fees that can be costly.  In fact, not only does the holder pay overdraft fees but also the recipient of the check at times.  Those who repeatedly write bad checks can even be arrested.  As such, it is wise to contact one’s bank should an account holder accidentally overdraw his account and make sure not to repeat this mistake.

Joint Checking Accounts
Two people can share a joint checking account.  Partners, couples, parents and children are normally the ones who choose to commingle these funds.  Both participants have equal rights to the account, and they can deposit or withdraw funds.  Should one participant begin bouncing checks, this fund may be accessible, thus affecting the other holder as well.  However, there are benefits to have join checking accounts.  They are cheaper than having one single account.  Additionally, should one party become incapacitated, the other will have full access to the funds without legal obstacles.  Joint accounts are popular for those considering marriage and partnership, though it is wise to earlier discuss how finances will be commingled.

There are, however, some arguments against having this type of account.  Those with considerable debts, if sued, end up costing the other participant because their account could be accessible to the creditors.  Both participants may also have very different spending habits. Sometimes individuals should not have joint checking accounts as, for example, if two co-habitants decided to acquire one, there would be few legal protections should one person decide to transfer all the money from the account into another.

High-Yield Checking Account
There are high-yield accounts that pay relatively high interest rates.  Here, depositors must meet certain requirement or else they will only earn a base rate of under 1%.  The conditions vary by bank; in some, balances no less than $25,000 are required for a high yield.  Financial institutions benefit from such accounts, which attract new customers.

Checking Account Basics

Checking accounts allow individuals and businesses to deposit and withdraw funds from federally-protected accounts at banks, credit unions, savings and loans, and other financial institutions.  Checking accounts are a safe and efficient way to pay bills and deposit money though savings accounts pay more interest.  Most checking account holders can use checks to pay debts and use debit or ATM accounts to make cash withdrawals.  Some banks require a minimal initial deposit and proof of identification when creating a checking account.  Some states grant lifeline checking account options for low income customers and the elderly.  These checking accounts usually waive fees, including surcharges for ATM usage and service fees for low balances.

While banks will send accounting statements, owners of the account must keep track of their available funds.  If a check-writer writes a check for a higher than available balance, he may have to pay overdraft fees and there may be legal action.  While some banks protect checking account holders by notifying them when an overdraft occurs, most recoup losses through heavy service charges.

Banks have various ways that allow customers to check their balances.  Banks send monthly statements of debits and deposits to account holders.  Account holders can contact banks electronically – online or by phone – to receive real time updates of their checks and balances.  Even ATMs offer an option to check the balance.  Owners should also record their deposits and withdrawals in check registers and compare the two to ensure there are no disparities.

Advantages
There are numerous reasons to own a checking account.  First, the Federal Deposit Insurance Corporation insures them, which grants the holder the security of knowing his money cannot be lost.  Second, employers can make direct deposits, which save the holder time and effort from having to deposit the money on his own.  While this is a convenient method, the holder should still look at the check to ensure there are no mistakes.  Third, checks are more secure to send by mail than cash.  When receiving a check as paid, the owner has a receipt of payment.  Should he suspect someone stole the check and it hasn’t arrived to its destination, he can even stop payment on a check or report this indiscretion to the bank for a small fee.  If cash is stolen, however, there are no like remedies.  If a check is stolen, the owner can easily change the account number as well to prevent future theft.

Fourth, online banking is very convenient and most banks presently offer this service.  Online banking benefits those who had had issues balancing accounts in the past, as they allow holders to download information in order to balance accounts.

Fees
There are some small fees to holding checking accounts, though more and more banks offer free lifetime checking accounts.  Some, in fact, offer money on every ATM purchase the holder makes.  There are also interest bearing checking accounts, which require the holder to maintain a minimum balance.