270: Should I Put My Money in this Bank?

Learn how to evaluate whether high interest bank account offers are worth their salt or not.

Before we get started, I wanted to let you know about another awesome podcast called Profit Boss Radio. Profit Boss Radio, hosted by MBA and Certified Financial Planner Hilary Hendershott, highlights inspiring women who have created success in their financial and professional life. Each week you can tune in and hear how women have paved the road to sustained success with both beliefs and actions. Check it out at www.profitbossradio.com.

This is listener question Friday. Our listener asks:

Linda,

I recently saw this headline advertising a bank:

"This Secret Bank Has No Fees and Pays up to 100 Times the Normal Interest Rate."

It's an online-only bank account with no fees, no minimum balance and no minimum monthly deposit. It says it yields up to 1.00% interest, which is 100 times more than existing checking accounts!

It goes on to say, "a debit card and free ATMs anywhere in the world make it more accessible than a typical savings account, and the high yield makes it far more lucrative."

What you think about that? Is it a good deal?

Lindsay

Good job asking questions and wanting more information.!

Be careful of online "clickbait".

Online only banks are sprouting up. Does it matter to you if you can go visit a location if there's a problem and they don't answer the phone?

Here's what I was able to find out about this specific bank and offer:

1). They are upfront - it's a start up and has been in business less than one year.

2). Offered by a registered investment adviser, which is a securities firm, not a bank (more on that later).

3). It is covered by FDIC insurance up to $250,000 per account per individual.

4). Prospective customers cannot sign up for an account immediately. After submitting your email address, you'll able to enroll within seven to 14 days. You have to answer surveys and give more information.

5). Possibly cannot open multiple accounts and there is no mobile app, although they may have those items now, the information I read was that they were not available yet.

6). While it charges no maintenance fees, the account has a pay-what-you-want fee structure, and will periodically ask you to make donations of up to $6 per month (you can choose to pay $0). I would run from any business with a model like this, let alone a financial business!

7). It charges $25-$33 per overdraft, and there's no limit to the number of these fees you can incur in one day. If your account is in the red for five consecutive days, you'll be charged a daily $5 extended overdraft fee. Given that they lack savings accounts, you can't sign up for an overdraft protection transfer service.

8). Fees for incoming and outgoing wires. Outgoing wires cost $40. One wire would negate a year's interest.

9). It does not currently offer a joint checking account, savings accounts or CDs.

10). ATM fee: $0, with unlimited worldwide reimbursements. ATM fees are reimbursed without limit. STAR system, for example. This alone will cost them a lot of money and potentially kill their profitability.

11). The account also has a standard foreign-transaction fee of 1.1%.

12). Cannot make bill payments or write checks.

13). You will be paid 0.25% on balances up to $2,499.99 and 1.00% on balances of $2,500 or above. On $2500, 1% is only $25! While the market sounds great, you could easily incur another fee that would negate a year's interest.

14). Be careful with blog recommendations of checking accounts and credit cards. They earn commissions (it's in the small print on the website) when you buy products/services so while they try not to be biased, they are.

To me, this looks like an operation that wants to cross-sell investment accounts to you, so they are willing to sell a loss-leader in order to get your other assets.

A good old traditional bank or credit union will serve you much better. They have a long history of being in business, they have a fee structure that has allowed them to stay in business (you must make a profit!), and they have multiple products and services, plus account controls (like overdraft protection) that will serve you better.

Remember, at 1% interest, it will take 72 years to double your money! Don't get caught up in the too-good-to-be-true offers that make you $25. Work on getting to Steps 4 & 5 of the 6 Steps to Wealth: invest in a money engine and compound at a high rate.

Savings accounts aren't money engines. They are places to store your emergency fund or gather money before investing. Keep studying investments, as I know you are, and you'll be much better off in the long run, Lindsay!

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Move your net worth in the right direction by getting "11 Quick Financial Tips to Boost Your Wealth" at www.lindapjones.com.