March 31, 2023

Bucks Blog: Finding a High-Yield Checking Account

Interest rates on most savings and checking accounts remain anemic. But for those who are comfortable with electronic banking and who are active debit-card users, high-yield checking accounts offered by smaller, regional banks and credit unions can be a more lucrative option.

The financial site examined 56 “high yield” checking accounts across the country, and found an average yield of 1.64 percent. That’s considerably lower than rates the site found last year. But it looks quite good in comparison to most interest-bearing checking accounts, which had a national average yield of just 0.05 percent.

The catch is that to benefit from the accounts, which are federally insured, users have to meet some requirements each month.

For instance, all of the accounts reviewed by Bankrate require at least 10 debit-card transactions a month, and all require that users receive their monthly statements electronically. Most also require direct deposit or automated bill payments.

The penalty for not meeting the requirements is severe — the average interest rate drops to just 0.07 percent.

If 10 debit transactions are required a month and you make just nine, you’re out of luck, said Greg McBride, senior analyst at Bankrate.

In addition, the accounts all carry balance caps — maximum balances on which the above-market interest rate applies.

The average cap is about $17,000 (down from about $19,000 last year), but the highest-yielding accounts tend to have the lowest caps. None of the 14 best-paying accounts available nationally, for instance, have a cap above $15,000, so if you had $20,000 in the account, the additional $5,000 would not earn the higher rate.

Still, Mr. McBride notes, consumers who can handle the requirements may still benefit from the accounts, perhaps as a place to park emergency funds or other cash.

Roughly a third of the high-yield accounts that Bankrate surveyed are available nationally, although some require a visit to a branch to open the account. About 39 percent of the accounts have some geographic limitation, like in-state residency.

Ouachita Independent Bank in Monroe, La., for example, offers a 3.01 percent annual percentage yield — but the account is available only to residents of Louisiana, Texas, Arkansas and Mississippi.

Do you have a high-yield checking account? Do you find it easy to meet its requirements?

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Bucks Blog: Weighing Prepaid Cards vs. Checking Accounts

Prepaid cards can be a better deal than checking accounts for some people, but the cards need more consumer safeguards, a new report from the Pew Charitable Trusts finds.

Along with the report, “Loaded with Uncertainty,” Pew introduced an online tool to help consumers determine which option is best for them.

The report divides consumers into three types in terms of their banking expertise: “savvy,” who use direct deposit and avoid fees whenever possible; “basic,” who aren’t as proficient at avoiding fees and have at least one overdraft fee a month; and “inexperienced,” who make heavy use of services but typically pay two overdraft fees a month.

Then, the researchers applied those characteristics to more than 200 checking accounts offered by the 12 largest banks, and 52 prepaid cards available online, to see which accounts best-suited each category.

For savvy consumers, checking accounts are the most economical, with a median monthly cost of about $4, compared with $4.50 for prepaid cards. Inexperienced consumers, however, did better with prepaid cards, which cost them a median of about $29 a month, compared with $94 for checking accounts.

Still, the cards carry myriad fees, and disclosure isn’t uniform. So just because a card doesn’t disclose that it charges a fee, for instance, doesn’t mean that it doesn’t charge it. There’s simply no way for consumers to know until they end up incurring the charge.

Also, balances on prepaid cards don’t always have clear protection from F.D.I.C. insurance, the report found. If a bank fails, the agency reimburses deposits up to $250,000. But many companies that offer prepaid cards aren’t banks and don’t hold the funds themselves. Rather, they pool funds in large accounts at a third-party bank, where the money may be covered by so-called “pass-through” insurance, which may be more tenuous, the report says.

Of the 52 cards Pew studied, only three indicated that they lacked F.D.I.C. insurance. But there is no federal oversight or supervision of prepaid companies that aren’t banks, to make sure the proper requirements for the insurance are met, Pew found.

“Claims of F.D.I.C. insurance in cases where portions of consumers’ funds may in fact be uninsured create a false sense of security for unsuspecting consumers,” the report said.

The report urges the federal Consumer Financial Protection Bureau to create better oversight of the cards.

Do you use prepaid cards? Do you prefer them to checking accounts?

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Bucks: Pew Feature Illustrates Banks’ Transaction Infractions

An arm of the Pew Charitable Trusts have been gaining some traction with its campaign to get banks to disclose fees associated with checking accounts in clear, simple language. One bank practice that Pew thinks is especially important for banks to clearly explain is the order in which they process transactions, which can affect the number of fees you pay if you overdraw your account.

To help illustrate the problem, Pew’s Safe Checking in the Electronic Age project has created an interactive feature, dubbed “Transaction Infraction.” The tool lets you toggle between two screens that show you how the way in which a bank orders your transactions can greatly increase the fees you will pay. (The example is taken from an actual court case, Gutierrez vs. Wells Fargo Bank).

On the first screen, you can see what happens when the 12 transactions were processed chronologically. Mr. Gutierrez ends up with a negative balance of about $45, and a single $22 fee.

On the second screen, you can see the order in which Wells Fargo actually processed the same transactions. The result is a negative balance of nearly $112, and four fees, totaling $88.

Banks have typically processed transactions in the order of the largest to the smallest, which can increase overdraft fees. But some banks are now switching to processing the smallest , or at least chronological order.

(Wells Fargo made changes last May to the way it processes some payments. Paper checks and automatic deductions — like pre-authorized monthly student loan payments — are still paid from high to low. But the bank processes A.T.M. withdrawals, debit card purchases and online bills chronologically, in the order received.)

Take a look at the tool and let us know what you think in the comments section.

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Bucks: Thursday Reading: Traveling the Mediterranean on a Budget

May 19

Thursday Reading: Traveling the Mediterranean on a Budget

Traveling the Mediterranean in summer and on a budget, cheap tickets on private jets, more protections for checking accounts and other consumer-focused news from The New York Times.

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Bucks: Bill Paying Made Easier, but for a Fee

Courtesy ChargeSmart

Lots of people like to pay big bills with their credit or debit cards so they can rack up reward points or manage their cash flow when money is tight. But it’s sometimes hard to do that with certain big bills, like those from your mortgage servicer or your electricity provider. Many of those companies still refuse to accept plastic — or accept only certain brands.

That’s where the online payment provider ChargeSmart fills a niche. The company acts as a middleman, accepting payment from your credit or debit card and then arranging a funds transfer to pay your bill. But it charges a fee of as much as $9.95, in the case of a car payment.

The rationale for doing this puzzled me. Why would you pay a fee to pay a bill, when you could just write a check — or, even easier, pay it online from your checking account?

Tim Brinkman, ChargeSmart’s chief executive, said in a telephone interview that most of its 300,000 or so users do, in fact, have checking accounts. Most use debit cards, which are tied to checking accounts. But only about 15 percent of checking account holders, he said, actually set up electronic bill payments. They may see it as too time-consuming to enter the necessary information, or they may balk at the so-called negative float that can occur when funds are quickly withdrawn to pay a bill, but the recipient doesn’t actually get the funds for as much as five days.

Or, if they’re using a credit card, they gain time to pay a big bill — useful for people who get income in spurts, like salespeople or real estate agents who work on commission, or for someone on a tight budget who gets hit with, say, a big car repair bill and is juggling payments. They can pay their mortgage on time and avoid hurting their credit score, he said, but know they won’t have to cover it with cash until the next billing cycle. “It gives some breathing room,” he said.

Mainly, though, Mr. Brinkman said, people use ChargeSmart because of its “ease of use.” People can find their utility company, mortgage servicer or student loan company from a pull-down menu and make the payment quickly, without having to register on the Web site. Payments post within two to three days. “They like the fact that it shows up on their statement, and there are rewards associated with it,” he said. Some credit cards, he noted, offer cash back, which can reduce the impact of the fee.

The fee can vary, depending on the size of the payment and the company being paid. In some cases, it’s a flat fee, while in others, it’s a percentage of the bill, or some combination of the two. (The Web site offers payments to hundreds of utilities across the country. In a test run, a $200 payment to Alaska Electric Light and Power cost $9.53, while the same payment to Southern California Gas Company cost $4.95, according to the Web site). Even if you’re getting 2 percent back on your credit card ($4, on a $200 charge), you’re still paying something for a service that you could get free — or, at least for the cost of a stamp. “We don’t say it’s the right option for everyone all the time,” Mr. Brinkman said. “But it’s a great option for people to have.”

In some cases, depending on the card used, ChargeSmart doesn’t make money on the transaction, because of the high “interchange” fee it has to pay, Mr. Brinkman said. But ChargeSmart may benefit from a proposed federal cap on such fees, which merchants pay banks to process credit and debit card purchases. (Or, Mr. Brinkman said, maybe not. Banks may de-emphasize the use of the cards in response to the proposed cap or tighten standards for getting the cards. “There’s always unintended consequences,” he said.)

Meantime, he said, the site is offering incentives to continue to attract new users. This summer, for instance, Discover will pay all ChargeSmart user fees for its cardholders for a fixed period of time, as part of a promotion.

Have you used ChargeSmart? Do you think the convenience is worth the fee?

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