How I Bank
Posted by Frugal on April 21st, 2006
I actually started online banking back in 1998/1999 when I first read an article on online banking in BusinessWeek. The article was comparing two internet banks, and I chose to give NetBank a try. NetBank was one of the highest yielding banks in the nation at that time according to www.bankrate.com, and has been so until recent last 2 to 3 years. I made sure that NetBank was listed at FDIC http://www2.fdic.gov/idasp/main_bankfind.asp database, and then I started my online banking.
In the beginning, I didn’t have a lot of trust. So I started by depositing some small amount of money, and tried to withdraw money from my account by checks & ATMs. After everything seemed to work fine without any problems, I started to move majority of my cash holdings to NetBank.
Because of the inconvenience of online banking, mainly due to very few free ATMs, I keep accounts at two local banks. In one local bank, I only have saving account to reduce the amount of money that I need to keep for minimum balance to avoid fee, since checking account usually has a higher minimum balance. In another local bank, I have both checking and saving accounts, so that I have at least a checking account locally. And my rationale to have two local banks is to simply increase the total number of free ATMs that I could use in a short distance from wherever I was. Of course, if you don’t have enough cash reserve, you probably want to limit the number of banks you have.
This strategy of having an online bank and two local banks have served me well. I can easily access my small cash need, while I can keep the majority of my cash in a higher yielding online account. Depending on your comfort level for accessible cash, you can put that amount in local banks, and put the rest in online accounts. Since I conduct most of my purchases through credit cards, my need for cash is low. I usually only keep about one thousand dollar in local banks, but it could vary from a few hundreds to just less than two thousands. And to avoid all kinds of ATM & bank fees, I define my accessible cash as any amount over the minimum balance that is required to avoid monthly fee. And I always use the ATMs of my banks.
I also take full advantages of (free) online payment offered by NetBank. Every month or quarterly, depending on the bill frequency, I pay my electricity, gas, water, trash, home owner association dues, and two of my credit cards automatically. My phone bill and auto-insurance is paid automatically through credit card instead of NetBank, since I can get the 1% cash rebate on credit card charges. Having all the bill paying arrangements, I spend probably less than 10 minutes for viewing or paying all of my bills, excluding credit card bills. And I make sure that there is sufficient amount of money for payments by setting up an automatic transfer of an upper estimate of the total bill from my major high-yielding money market account to the checking account that allows unlimited withdrawals.
In summary, I try to achieve the followings for my banking needs:
- Easily accessible cash by having two local banks.
- Higher yields for most cash in accounts at my online banks.
- Avoid any bank or ATM fees by using ATMs of my banks.
- Take full advantage for online bill payments to save time & stamps.
By the way, I opened accounts at INGdirect a few years ago, and now I’m still debating whether it is worth my time and trouble to move my INGdirect accounts to EmigrantDirect for their exceptionally high yields currently at 4.50% 4.65%.
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April 30th, 2006 at 8:45 pm
[...] Frugal from My 1st Million at 33 writes about how he uses banks for keeping his money safe. He mentions , ING Direct, and Emigrant Direct. (630 words) [...]
May 1st, 2006 at 6:06 am
I have adopted a similar method for Internet banking. I signed up for the HSBC Online Savings account and got $25. I then signed up for the HSBC Free Checking Account and got $10. Combined, the $35 basically took care of my first set of checks and some savings deposit slips. I have kept my free checking account at my local bank for a couple of reasons. I needed some local ATMs, as there are no HSBC ATMs in my state. Also, I wanted somewhere I could go and immediately deposit checks, if necessary, rather than having to mail them to HSBC. Further, my local bank just started offering a points program for using my check card. I have about 10,000 points already, and I get a $100 gift certificate when I hit 40,000 points.
Why switch to HSBC for checking? It is linked directly to my savings so I can transfer funds immediately. I really like being able to do this. I can transfer my mortgage payment to my savings until the day after I mail it out. That increases my average daily balance in my savings account. Also, if I run into an emergency, I can use the saved funds.
I have direct deposit setup to put $45/per pay into my HSBC Online Savings account, $25/per pay into my local checking account and the net of my pay into my HSBC free checking account. Why those numbers? Well, I did a reverse amortization to see how much I needed to sock away in savings to have $10,000 in ten years. Essentially, at 4.50%, I would have to put in just over $33/per pay (I get paid semi-monthly, 1st and 15th), and I would have $10,000 in ten years. So, I figured that I should bump it up a bit to get there more quickly. This was intended as emergency funds, so I wanted them to be there in case of an emergency. In ten years, I should really need emergency funds… as I hope to be well off, but having some easily accessible cash is always nice. If I follow this plan, I will get their in less than eight years. I also intend to stick a bit extra away when I have the opportunity.
The next step will be working towards my $35,000 in treasury funds (I-bonds). I plan to get there in ten years, as well. That would take just under $57/per pay at 6.73%.
Also, I like to pad it a little, as the rate may decrease.
May 5th, 2006 at 7:45 am
Hi Dus10,
Sorry that I couldn’t respond to you sooner. Just wonder how your points are converting to dollar on your check card. I will be writing an article soon on my credit cards, but if you can’t wait, you could click on the EmigrantDirect link, and it will get you to the 4.5% savings account AND 1.4% cashback credit card.
I also have some reservation about I-bond. It is the least harmful among all bonds. But I believe that is still a bond that authorizes the government to steal money away from you. Check out my latest market view and my inflation article. I will be writing more related articles too. I think a better investment choice may be a high dividend paying stock which will hedge against inflation. I will disclose more details in the next week, beyond my article on My Dividend Investing ($11775.91 for 2005)
June 11th, 2006 at 9:32 pm
here http://www.moneysavingfreetips.com/ibonds-rates.html it says you can buy i-bonds from treasurydirect online… anyone ever bought such ibonds from treasury direct?
is it a safe investment? what interest rate did you get?
June 11th, 2006 at 11:38 pm
Yes, I believe that using Treasury Direct, you can buy bonds directly from the US government. However, I never purchased any such bonds whether it’s I-bonds or regular bonds, because I believe bonds will become the games for losers due to higher inflation (and that includes I-bonds too when CPI are a little massaged by government).