My Favorite Checking Account

Are you still using that checking account with that bank your parents opened up for you when you were a teenager? If you’re like most of us, you probably held onto that account for quite a while… or maybe you’re even still using it. It’s funny how little thought we give to our checking accounts even though they pretty much are the central hub of our most critical financial transactions. It’s where we

• deposit our paychecks into
• pay our bills from
• withdraw cash from
• for some, it’s their primary method of payment (debit card).

Even though much of society is trending towards cashless transactions right now, checking accounts are still a necessary component for almost everyone’s financial system. Even though I may not visit a bank teller much these days or even withdraw cash that often from my checking account, I still have certain qualities I look for from my checking account.

Requirements for the best checking account

So what do I look for in a checking account? Well, it should have

• No monthly maintenance fee – is this so hard to ask for?
• No minimum balance requirement to waive any maintenance fee – the last thing you want is to have to remember how much you need to have in your checking account to avoid a monthly fee
• No ATM fees – why should you have to be stuck using a certain bank’s ATM network? Wouldn’t it be great if you could use ANY ATM without being charged for it?
• No foreign transaction fees – I actually recommend using a credit card without foreign transaction fees when possible while abroad, but a checking account debit card that doesn’t charge foreign transaction fees allows you to withdraw cash from foreign ATMs without being charged a foreign transaction fee
• Mobile check deposit – saves me a trip to the bank. Fairly common nowadays
• Free checks and debit card – are you really going to make me pay for these?

What about the interest rate!? Interest rates on checking accounts are generally pretty negligible that they shouldn’t be a factor in considering a checking account. Besides, you shouldn’t have the majority of your savings sitting in a checking account anyway. If you need a place to park liquid savings for the short term, I recommend a savings account that will generate more interest than a checking account.

I should take a moment here to discuss ATMs. Just like with health insurance providers, there are in-network ATMs and out-of-network ATMs. The simplest example is to take a national bank like Chase. If you’re a Chase checking account user, all Chase branded ATMs would be considered in-network. Chase pays to have these particular ATMs managed and maintained, so they would prefer it if you only used these ATMs. Any ATM that is not Chase branded, such as Bank of America or Citibank, would be considered out-of-network.

What about those generic grey ATM machines you see inside convenience stores, restaurants, airports, etc…? Those could be owned by a local operator, or they could be part of a national network that is not associated with traditional big banks. Allpoint Network is a commonly used ATM network used among online-only checking account operators. Their network also includes ATMs from traditional banks like Chase, Citibank, and Bank of America, which is pretty convenient.

When it comes to choosing your primary checking account, I would shy away from the big established national banks due to their fee structure, minimum balance requirements, direct deposit requirements, limited ATM network and other restrictions.

There are many online-only checking account options that do not have any monthly maintenance fees or minimum balance requirements. Some don’t even charge ATM fees, but sometimes only if it’s an in-network ATM.

ATM scenario

To clarify this point, let’s use an example. When you try to withdraw cash from an out-of-network ATM there are two parties involved. Let’s say you hold your checking account with Bank A and are trying to withdraw cash from an out-of-network ATM owned by Bank B. A couple of scenarios can arise:

1. Worst case – Your bank (Bank A) charges you a fee for using an out-of-network ATM. Bank B also charges you a fee for using their ATM.
2. Better case – Your bank doesn’t charge you a fee for using an out-of-network ATM, but Bank B still charges you a fee for using their ATM.
3. Best case – Your bank doesn’t charge you a fee for using an out-of-network. Bank B still charges you a fee for using their ATM, but your bank reimburses you for any fee that Bank B charged you. Bank A can’t control what Bank B does, so you’ll always be charged a fee using an out-of-network ATM. The best Bank A can do is reimburse you for the fee Bank B charged. In the end, you’ve paid no fees for using the ATM.

Fees are exacerbated even more if you’re withdrawing cash from an ATM in a foreign country. Chances are the ATM is out-of-network, and if your checking account provider charges foreign transaction fees (typically 2-3%), that fee will be applied on top of any ATM fees. I’ll have a separate article discussing why I think ATMs are the best place to get local currency when traveling abroad, especially in combination with the debit card from my favorite checking account.

My favorite checking account

So why do I think the Schwab Bank High Yield Investor Checking Account is the best checking account available? As I’ve mentioned before, there are a couple of checking accounts these days that can offer no account maintenance fees or minimum balance requirements. Where I think the Schwab checking account separates itself from the rest is its ATM fee policy and foreign transaction fee policy.

• ATM Fee Policy – In the three ATM scenarios I presented above, the Schwab checking account falls under the “best case” scenario.  There are other checking account providers that also fall under this category, but sometimes they limit the amount they will reimburse each month. For the Schwab checking account, it is unlimited reimbursements. In essence, you can use ANY ATM ANY number of times a month, and there will be $0 net fees. I say $0 net fees because I actually don’t believe there are any in-network ATMs for Schwab, they just treat all ATMs as the same (out-of-network). So you will always be charged a fee by the ATM, but at the end of statement month Schwab will total the amount of ATM fees you were charged and credit your account with that amount. I don’t know the details of how they determine what constitutes a fee or not, but I’ve never run into an issue with them not reimbursing any ATM fees. An extra added bonus of this benefit is that not only does it apply to any ATM in the United States, but it also applies to ATMs abroad as well.
• Foreign Transaction Fee Policy – $0. You’ll be hard pressed to find a checking account that offers no foreign transaction fees. This is primarily related to when using the Schwab debit card linked to the checking account. This means when you utilize your debit card to make any purchases abroad, you won’t be charged a foreign transaction fee (usually 2-3%). This also means if you use your Schwab debit card to withdraw cash from a foreign ATM in the local currency, you won’t be charged a foreign transaction fee as well.

On top of these differentiating features, there are no account maintenance fees or minimum balance requirements. Also included are unlimited free checks. Additionally, the interest rate on the checking account is currently 0.40%. While that is nothing to write home about, it is up to 40x more than you’ll find at traditional banks, which are usually at a measly 0.01%.

Downsides

Now even though Schwab Bank High Yield Investor Checking Account is the best checking account around, it’s not perfect.

• Primarily an online-only presence – There are some branch offices, but these are primarily catered for Schwab brokerage clients. You can deposit checks in branch, but not cash. If you do a lot of a cash deposits, this account may not be for you.
• Requires opening of Schwab One® brokerage account – You’ll have to open a separate account the same time you open the checking account, although there is no minimum balance requirement for both accounts. I’ve kept my brokerage account at $0 for the 10+ years I’ve had my checking account.
• Requires a hard pull on your credit report – If you don’t know what a hard pull is, I’ll get to into it and why it may be important to you in a separate post. Most checking account openings only do a soft pull on your credit report. This point isn’t really a negative, but just something to be aware of.

There are other great checking account alternatives that I personally don’t have experience with, but some of the ones that look attractive to me include Ally, Simple, and Aspiration. I may review these checking accounts at a future date. There are good qualities I like in each of them, however, none of them have a feature set as extensive and complete as the Schwab Bank High Yield Investor Checking Account.

Keep in mind that you’re not restricted to having just one checking account. As mentioned above, one of the gaps of the Schwab checking account is there are no easy options for cash deposits. For that reason, I do still maintain a checking account with one of the major banks just so I can use a branch teller or ATM to deposit cash, if necessary. Granted, this rarely happens nowadays, so I could probably live without it but it’s there when I need it. Otherwise, I’ve used my Schwab checking account as my primary checking account for over a decade and have been extremely happy with it.

Let me know in the comments below who you use for your primary checking account and if this post is making you consider to switch. I’d like to hear your thoughts!

BONUS: Open a new Schwab Bank High Yield Investor Checking Account now and get $100.