High-Interest Checking: Gift or Gimmick?

[admin]

Be sure to know what you're getting before you dive into high-interest checking accounts.

More...

[scorch]

I had to look around for that article.

http://finance.yahoo.com/expert/arti...eyhappy/200462

I looked into getting a high yield checking account several months ago, but I did not get one because I felt it was more trouble than it was worth.

[debtfreein18]

I don't know...10 debit transactions isn't hard, I already use e-bill pay and get my paychecks direct deposited, and emailed statments would actually be better for me (and saves a few trees...).

If I ever decided to swear off CC's and give up my free airline miles, this would be a great alternative. Just groceries and gas would be 10 transactions for me and my husband, so no hardship there.

I can see they aren't for everyone, but as long as the "hoops" don't get more complicated than they are currently, for me at least it would be a good fit.

[Methuss]

What the article doesn't mention is that those accounts typically say "up to 5%" because they are tied to an index rate. I have yet to see 5% on mine. It usually comes in at about 3.5%-3.75% at the end of each month because the actual amount you get is tied to an index...it's not usually fixed... Still, that is better than the return on most money market accounts right now.

[Bigwoodystyl]

Originally Posted by Methuss

What the article doesn't mention is that those accounts typically say "up to 5%" because they are tied to an index rate. I have yet to see 5% on mine. It usually comes in at about 3.5%-3.75% at the end of each month because the actual amount you get is tied to an index...it's not usually fixed... Still, that is better than the return on most money market accounts right now.

That used to be true.

However, in late 2007, banks realized they needed significantly more deposits than previously thought and at the same time indexes were dropping to near zero levels. At that time, the majority of banks realized they needed higher deposit rates to entice customers than their previous indexes/margins could provide. Obviously, not wanting to raise margins to very high levels that would be unrealistic if/when the economy improved, the vast majority of banks scrapped indexes for deposit rates and instead setup their own "floating" arbitrary rate sheets to be evaluated at a set periodic interval, such as once every quarter or once every 6 months. Therefore, today, most deposit rates are completely arbitrary based only on the discretion of the banks' retail operations management. To compound the matter, many of the mega banks use a different set of arbitrary rates, depending when you opened your account and there are all sorts of promotional accounts. It's become difficult to get a true apples-to-apples comparison of all the different accounts even within the same bank.


Now, 3+ years ago, the most popular index for deposit accounts was tied to the imoneynet yield and it was rare to find an APY above this rate. Today, that rate hovers around 0.07% APY and it's obvious that no deposit product is going to entice any intelligent investor/saver at that rate.