I thought I’d take a bit of a break from investing and taxes to discuss what I think are the best bank accounts.
Online Only Accounts
Online only accounts are the best overall bank accounts in this day and age. There are, of course, some people that will require certain features that online banks do not provide, but if I have to make a one size fits all recommendation, an online only bank account is generally the way to go.
I consider these features mandatory for any bank account you use today (unless there is a specific feature you need from a bank account that isn’t satisfied by accounts that do satisfy this list):
- No account minimums
- No maintenace fees
- Free Checks
- Mobile Deposit (ie, deposit checks via taking a photo from your phone)
- ATM fee reimbursal (online only banks clearly don’t have their own ATMs, so they reimburse fees incurred by you at other bank ATMs. Do not use one of those weird free standing ATMs – they will likely charge additional fees that will not be reimbursed by your bank)
- Some interest, though these days it’s hardly worth fretting over
- Free bank to bank transfers for accounts you own (surprisingly, some brick and mortar banks actually charge for this!)
- FDIC Insurance (though I doubt there’s actually any US bank out there without FDIC insurance)
Some extra nice features that you might want to look for (I’m not sure if there exist banks that offer all of these)
- No foreign transaction fees for charges to your debit card (typically you are charged 3% of the transaction)
- Free stop payments (if you wish to cancel a check you have issued)
- Free incoming domestic and/or international wire transfers
- Free outgoing domestic and/or international wire transfers
- Earns interest (though right now it’s not worth fretting over)
There is one feature that online banks will never have: cash deposits. This shouldn’t be a problem for most people, but if you do need it, I would recommend your local credit union – they are far more likely to have a no minimums, no fee account thank a standard brick and mortar bank.
My favorite checking account is the High Yield Investor checking account from Charles Schwab. It has all the features that I consider to be mandatory. It also has no foreign transaction fees, free stop payments, incoming domestic wire transfers, and best of all…the ATM fee reimbursal is worldwide.
This makes it the perfect account for getting local currency while abroad. You can just walk up to any bank ATM and insert your Charles Schwab debit card to withdraw money in the local currency for free. You will even be reimbursed at the end of the month for any ATM fee incurred. A typical brick and mortar bank will charge you 3% + a flat fee of $3-$5 every time you use a foreign ATM. That’s on top of any fees charged by the foreign bank.
(This account also makes it incredibly easy for a US person, with some planning, to send money to a friend or family member who is abroad. Open a joint account with Charles Schwab. The US person deposits money into the account. The person abroad can just make an ATM withdrawal for free. If the person abroad has a bank account in the foreign country, for maximum efficency he or she should go to an ATM of their foreign bank, do a cash withdrawal using the Charles Schwab debit card, and then do a cash deposit into their foreign bank account. One could imagine this being useful for parents who have their children studying abroad.)
Now, this checking account does have two caveats: they do a hard pull on your Equifax credit report, and they do not accept international wire transfers. The latter shouldn’t be of concern to most people, whereas the former may. Credit inquiries only make up 10% of your score and I honestly think people worry too much about hard inquiries (but that’s just my opinion, the credit bureaus aren’t too open about the scoring model). Though I will say if you are looking to get a major loan in the next two years (car loan, mortgage, etc.) you should try to avoid all hard pulls.
Otherwise, my next recommendation is Ally bank. They satisfy all the mandatory features I listed and seem to have good customer service. They do charge a 1% foreign transaction fee and for outgoing domestic wires. I’m not sure if they charge ATM fees or reimburse them for
I’m sure there are other checking accounts that satisfy my list of mandatory features, but these checking accounts are the ones I’ve used.
These days savings accounts from brick and mortar banks are giving a paltry 0.01-0.05% interest. Savings accounts from online only banks are giving about 1% in interest. This is essentially free money that you are giving up by not setting up an online only account with ~1% interest. And honestly, setting up a new bank account is not that hard.
My first recommendation is for Ally bank. They consistently provide among the top interest rates for online banks.
I’ve heard that Capital One 360 is pretty good too.
There’s a whole other set of rewards checking and savings accounts that I will discuss at a later time. They involve you jumping through some hoops to get better interest and/or bonuses.