Schwab 4.25% checking

[JohnEyles]

Schwab is pushing a new 4.25% APY "investor checking" account.
It is pretty tempting and I'm wondering about a couple things ...

1. I wonder if this is bait&switch and they'll revert to a more
typical sub-1% rate once they get a bunch of people in ?

2. I wonder if hometown banks (like my current one) will
be forced to offer competitive rates soon ?

It'll be a fairly major pain to change, since I'll have to change
numerous bill-pay auto-drafts and a couple of auto-deposits,
but potentially worth hundreds of dollars per year, depending
upon how large a chunk of cash a retiree moves from portfolio
into checking account at one time.

 

[LOL!]

I am not too concerned about interest on a checking account. We used to use all-in-one TDWaterhouse and now use all-in-one WellsFargo. The checking account balance is relatively small compared to the money market fund balance. The real "cash" is in the MMF which pays a higher interest rate. Transfers between checking and MMF are virtually instantaneous.

Even with an average checking account balance of $2,000 that's only $100 a year if checking pays 5% more than the MMF (which it does NOT). Plus you save money switch away from Schwab to WellsFargo. Maybe its Chuck's answer to no commissions at WellsFargo? If so, it's a pretty lame reaction. Too little, too late.

 

[ziggy29]

Schwab is pushing a new 4.25% APY "investor checking" account.
It is pretty tempting and I'm wondering about a couple things ...

1. I wonder if this is bait&switch and they'll revert to a more
typical sub-1% rate once they get a bunch of people in ?

Could be. I usually only keep about $100 in mine, anyway, linked to my brokerage account's money market fund. I tend to only use this for ATM withdrawals since Chuck pays the ATM fees.

My primary checking account is with my credit union (which pays 5% on passbook savings), and since there's rarely more than about $2,000 in there, I tend not to sweat the small stuff.

 

[brewer12345]

I think if you already are a Schwab customer, its a nice extra. Otherwise, not worth the PITA. I switched to Schwab as my primary checking account years ago and haven't looked back, since they make it very easy and cheap.

 

[ziggy29]

I think if you already are a Schwab customer, its a nice extra. Otherwise, not worth the PITA. I switched to Schwab as my primary checking account years ago and haven't looked back, since they make it very easy and cheap.

I actually used Schwab checking as my primary until my credit union also started offering free online bill pay and other perks. If they discontinued that, yeah, my direct deposit would go back to Chuck.

 

[brewer12345]

I actually used Schwab checking as my primary until my credit union also started offering free online bill pay and other perks. If they discontinued that, yeah, my direct deposit would go back to Chuck.

Billpay is free with Schwab and I know that I have a lot more pull with them (compared to my local bank) if there is a problem, since I'm definately a quite profitable customer to them.

 

[JohnEyles]

I am not too concerned about interest on a checking account.

I'm confused about this attitude and wonder if that means I'm missing
something ...

My living expenses are roughly $40K/year. I don't want to screw
around with moving a bolus of money from my various investment
accounts into my checking account more than perhaps 4 times per
year. That means a checking balance of $10K or so, so 4.25%
represents about $500/yr, not earth-shattering I suppose, but maybe
worth a little PITA, IMHO.

Is there a better way to manage moving SWR into checking ?

 

[Freein05]

I use my brokerage account as my MM account. It is really an FDIC insured checking account. I have unlimited check writing and bill pay at no cost. They even reimburse me for charges made at foreign ATMs. The brokerage account pays 4.85% APY. I have my primary checking account at a credit union. They only pay .25%APY so I do not leave much money with them it is in and out. They also have free bill pay. I have set up a transfer from my brokerage account to the credit union. I do the transfers on line. It only takes about two days for money to get from my brokerage account to my credit union checking.

The 4.25% Schwab is paying does not sound like a teaser rate. I have been getting 4.5% to the current 4.85% for over 3 years.

 

[megacorp-firee]

I use my brokerage account as my MM account. It is really an FDIC insured checking account. I have unlimited check writing and bill pay at no cost. They even reimburse me for charges made at foreign ATMs. The brokerage account pays 4.85% APY. I have my primary checking account at a credit union. They only pay .25%APY so I do not leave much money with them it is in and out. They also have free bill pay. I have set up a transfer from my brokerage account to the credit union. I do the transfers on line. It only takes about two days for money to get from my brokerage account to my credit union checking.

The 4.25% Schwab is paying does not sound like a teaser rate. I have been getting 4.5% to the current 4.85% for over 3 years.

Which brokerage firm do you use that pays 4.85?

 

[LOL!]

I don't want to screw around with moving a bolus of money from my various investment accounts into my checking account more than perhaps 4 times per year. That means a checking balance of $10K or so, so 4.25%
represents about $500/yr, not earth-shattering I suppose, but maybe
worth a little PITA, IMHO.

Is there a better way to manage moving SWR into checking ?

I'm confused about this attitude and wonder if that means I'm missing something myself ....
Since you probably use online bill paying every month, why not keep $500 in checking and leave the $10K in your MM fund paying more than 5%? Moving money from MM to checking is as simply as a bill pay task, so one can do the movement at the same time you pay your bills online. It's even easier than typing this response to your post.

I guess I see no reason to create a PITA to avoid another PITA.

 

[ziggy29]

I'm confused about this attitude and wonder if that means I'm missing
something ...

My living expenses are roughly $40K/year. I don't want to screw
around with moving a bolus of money from my various investment
accounts into my checking account more than perhaps 4 times per
year. That means a checking balance of $10K or so, so 4.25%
represents about $500/yr, not earth-shattering I suppose, but maybe
worth a little PITA, IMHO.

Is there a better way to manage moving SWR into checking ?

I tend not to have more than about $2000 in checking, so to me, the interest rate paid to me is about fourth on the list in importance, behind range of services, quality of service and lack of annoying nickel-and-dime fees.

On a $10,000 balance, though, that answer would differ. There are several ways you can do this. 4.25% isn't a horrible rate on the money given the convenience and liquidity. But how hard is it to transfer between a money market fund paying, say, 5-5.25% into the checking account? Depends on how much it's worth to you to get that extra point.

 

[Freein05]

Which brokerage firm do you use that pays 4.85?

I use Smith Barney. I just looked at their rates and the program. It is a tiered program. Tier 1 is currently getting 4.97APY a little higher than I thought. Their tiers are based on total assets with them. IE total value of stocks, mutual funds, deposit accounts, and bonds. Deposits are insured up to 300K by FDIC. Interest and dividends are swept daily into bank deposit program.

Tier 1 requires 1 million rate 4.97%
Tier 2 requires 5ooK 3.51
Tier 3 requires 250K 3.37
Tier 4 250K or less 1.33

For small investors Schwab's rate of 4..25% looks good.

 

[LOL!]

FWIW, WellsFargo cash-sweep MMF (WFLXX) pays 4.62% this week even for a 1 cent balance. Interest rates on WF checking accounts is here.

So if you have $100K in there (ha-ha) you get 4.31%. Under $5K you get 0.1% which is better than TDAmeritrade default cash sweep MM. TDAmeritrade manual cash sweep can be in NPLXX which pays 4.78% this week. Vanguard Prime MM is paying 5.13% this week.

Moral: keep low balance in checking. Keep cash reserves in an associated MM fund. And don't use SmithBarney for anything.

 

[Freein05]

With Smith Barney I do not have to do anything when I receive an interest or dividend payment it automatically starts earning 4.97%. This is beneficial when traveling or busy doing something I do not lose a days worth of interest. I do have a small account at TDAmeritrade and was surprised at how low their sweep account interest rates are. The SB website is a lot more user friendly. You do pay a lot more in commissions. I am a buy and hold so it does not affect me too much. With Citibank doing a lot of consolidating the local SB office my be closed. If that happens I would go with Chuck.

 

[LOL!]

Transfer all assets from SmithBarney to WellsFargo "in kind" and enjoy all the same features, privileges, benefits but without ANY FEES WHATSOEVER. With WF, when I receive interest or dividends it goes right into the money market fund.

You may well ask, "Who pays the fees if I'm not paying them?" The answer is all those folks who bounce checks, go over their limits, and who have low balances.

I also have a TDAmeritrade account, but I keep absolutely no cash with them. I haven't paid them any commissions in more than a year. Any dividends paid, get "swept" to my Vanguard or WF money market fund.

It amazing how trivial it is nowadays to reduce investing expenses to ZERO.

 

[terminator]

You may well ask, "Who pays the fees if I'm not paying them?" The answer is all those folks who bounce checks, go over their limits, and who have low balances.

Not disagreeing with the general concepts, but we're all "paying" when the brokerages lend out our securities to short sellers (and collect a fee while artificially driving down the stock price) and sometimes we're paying for it in the bid/ask spread. There is no such thing as "totally free." But it is darn cheap these days as I remember the commissions twenty years ago and they were a lot more expensive and based on such things as the transaction amount and number of shares.

 

[SecondCor521]

I'm confused about this attitude and wonder if that means I'm missing
something ...

My living expenses are roughly $40K/year. I don't want to screw
around with moving a bolus of money from my various investment
accounts into my checking account more than perhaps 4 times per
year. That means a checking balance of $10K or so, so 4.25%
represents about $500/yr, not earth-shattering I suppose, but maybe
worth a little PITA, IMHO.

Is there a better way to manage moving SWR into checking ?

I can't answer your question, but I would point out that if your expenses are roughly constant throughout each quarter, and you go from $10k at the beginning of the quarter to $0k at the end, your *average* balance would be $5k, which means the interest you would earn would be closer to $212.50, which is also presumably taxable income, so you're maybe talking $150 of spendable money per year.

2Cor521

P.S. -- I keep my extra cash in Amtrust Direct, Bank CD Rates (Certificate of Deposit) & Money Market & Savings Accounts - AmTrustDirect.com, which yields 5.36% taxable, and can ACH to and from up to, I think 6 different external accounts (I have just three set up right now.) Not the greatest security practices or customer service, but the interest rate is pretty high. I also use Amboy Direct, Welcome to Amboy Direct, which pays almost the same rate but only links to one external account.

 

[Freein05]

Transfer all assets from SmithBarney to WellsFargo "in kind" and enjoy all the same features, privileges, benefits but without ANY FEES WHATSOEVER. With WF, when I receive interest or dividends it goes right into the money market fund.

You may well ask, "Who pays the fees if I'm not paying them?" The answer is all those folks who bounce checks, go over their limits, and who have low balances.

I also have a TDAmeritrade account, but I keep absolutely no cash with them. I haven't paid them any commissions in more than a year. Any dividends paid, get "swept" to my Vanguard or WF money market fund.

It amazing how trivial it is nowadays to reduce investing expenses to ZERO.

I do not pay any fees at SB.

 

[BUM]

I think if you already are a Schwab customer, its a nice extra. Otherwise, not worth the PITA. I switched to Schwab as my primary checking account years ago and haven't looked back, since they make it very easy and cheap.

Yep, in the end (for me) its not worth it. I'm at the Command Post (LaZBoy recliner) with the Schwab Account Application forms and ECATs all filled out, to crowbar the hoard from Vanguard. After much deliberation, I've decided its NOT worth it.

For me key factors were:
Prime MM rate of 5.13% (I keep a lot of dry powder).
In ER I want my primary checking local. For example I spend most of my time (and money) in NY and NC, so Wachovia is local wherever I am.

I thought that Schwab bennies could suck me in. I'm staying put for now.

 

[LOL!]

With Smith Barney .... The SB website is a lot more user friendly. You do pay a lot more in commissions.

I do not pay any fees at SB.

That's totally awesome!

 

[pasttense]

One thing many people could find useful is to keep their existing checking account and set up a Money Market account like Gmacbank. This allows 6 withdrawals a month with no more than 3 being check or debit card (used in a point of sale transaction). So you might set up say 4 of your largest monthly transactions as bank autopay (credit cards, mortgage) at GMAC so you have a couple other available for miscellaneous withdrawals, perhaps transfers to your checking account. GMAC pays 5.3% currently. So the person who wants to only make only 4 $10,000 transactions a year does the transfer to GMAC. So of his $3300 monthly expenses probably half are handled by the 4 withdrawals at GMAC (for example put as many purchases as possible on rebate credit cards which are paid in full each month). So every month he transfers say $1650 to his checking account so he will have an average checking account balance of between $1000 to $2000 (depending on how large a buffer he wants in the checking account). So he is losing $50 to $100 a year in interest.

 

[clifp]

I've found Schwab banking to terrific way of handling money management.
Everything is free no restrictions on size or frequency of withdrawal, free online bill pay. They do automatic transfers from your Schwab brokerage account to the checking account for overdrafts. Plus I love being able to going to any ATM in the world and withdraw money with no fees, since they rebate ATM fees. I even find myself using the free online wire transfer several times a year.

Most importantly, I like knowing that my money is alway earning interest.