The bank you have–probably your neighborhood Big Bank–is most likely a big fat rip-off with fees and minimums that you don’t need to be paying.
Banks love average customers, because we don’t really want to switch banks, and they think we don’t know any better about things like monthly fees and overdraft protection.
But after reading this post, you’ll see how easy it is to beat the banks at their own game. As long as you’re not too lazy to switch your bank (which takes less than a week).
I’ll show you how to pick the best bank and the best accounts so you can earn the maximum amount of interest.
Your checking account is the backbone of your financial system. It’s where your money will first go before it’s “filtered” to different parts of your system, like your savings account, your investing account, and your guilt-free spending.
Checking accounts let you deposit money and withdraw money using debit cards, checks, and online transfers.
Ramit has said that he thinks of his checking account like an email inbox: All his money goes in his checking account, and then he regularly apportions it out to appropriate accounts. Things like savings, and investing, using automatic transfers.
Checking accounts are the number one place where unnecessary fees are levied, and we’re going to fix that by applying the information in this post.
Think of savings accounts as places for short-term (one month) to mid-term savings (five years). You want to use your savings account to save up for things like vacations and holiday gifts, or even longer term items, like a wedding or the down payment on a house.
The key difference between checking and savings accounts is this: Savings accounts technically pay more interest.
I say “technically” because on a practical level, the interest on your savings account is essentially meaningless.
Do you need a checking account AND a savings account?
The most important practical difference between checking accounts and savings accounts is that you withdraw money regularly from your checking account–but you rarely withdraw from your savings account.
Checking accounts are built for frequent withdrawals: They have debit cards and ATMs for your convenience.
But your savings account is really a “goals” account, where every dollar is assigned to a specific item you’re saving up for, like a house, a vacation, or an emergency fund.
Now here’s where Ramit’s advice gets tricky.
He recommends two different accounts at two separate banks.
Here’s why: Having your money in two separate accounts–and banks–uses psychology to keep your savings growing.
One basic way of looking at it is that your savings account is where you deposit money, whereas your checking account is where you withdraw money.
In other words, if your friends want to go out on Friday night, you’re not going to say, “Hold on, guys, I need three business days to transfer money to my checking account.”
If you don’t have the money available in your discretionary (checking) account because you’ve spent your “going out” money, you’ll know it.
Having a separate savings account forces you to keep your long-term goals in mind instead of just blowing them off to have a few rounds of drinks.
Here’s a video of Ramit explaining how to automate your finances further:
Lastly, Ramit has observed that banks that try to offer checking and saving and investing tend to be mediocre at all of them. You should want the best checking account, the best savings account, and the best investment account–no matter where they are.
3 Options for the perfect account set up
Instead of following recommendations for which banks you should use, it’s best to first take a look at the big picture so you can pick the best accounts for your personality and values.
1. Most basic option (good for most people)
A checking account and a savings account at any local bank. This is the bare minimum. Even if you already have these accounts, it’s worth talking to your bank to be sure you’re not paying fees.
2. Basic option + small optimization (recommended for most people)
This option means opening accounts at two separate institutions: a no-fee checking account at your local bank and a high-yielf online savings account.
With the checking account, you’ll have immediate access to your money and free cash transfers to your high-interest online savings account. You can also deposit cash through your local bank.
If you already have this setup, great! Just call to make sure you’re not paying unnecessary fees.
3. Advanced setup + full optimization (perfect for people who read things like Lifehacker and The 4-Hour Workweek)
This setup consists of maintaining several checking accounts and savings accounts at different banks, usually to eke out the most interest and services that various banks have to offer.
For example, Ramit has an interest-bearing checking account at an online bank and a savings account at a different online bank. Although you can set up automatic online transfers, having multiple banks means multiple websites, multiple customer-service numbers, and multiple passwords.
Some people find this overly complicated–if you’re one of them, stick to a more basic setup, unless it’s very important to you to fully optimize your bank accounts.
Optimize your bank accounts
Whether they’re accounts you just opened or accounts you already had, you need to optimize your checking and savings accounts.
This means you should be paying fees or minimums.
The key to optimizing an account is talking to an actual customer service rep, either in person or on the phone. That means you actually have to pick up a phone *gasps*
(And if you have a bad habit of falling victim to overdraft fees, this post will help you out)
Avoiding monthly fees
Maybe this is too demanding but if you’re lending a bank your money to relend out, you probably shouldn’t have to pay additional fees.
Think about it: If your bank charges you a $5 monthly fee, that basically wipes out any interest you earn.
If you already have an account at a bank you like but they are charging a monthly fee, try to get them to waive it. They will often do this if you set up direct deposit, which lets your employer deposit your paycheck directly into your account every month.
Banks will also try to trick you by demanding “minimums,” which refer to minimum amounts you must have in your account to avoid fees or to get “free services like bill pay.
These are BS.
Imagine if a bank required you to keep $1,000 sitting in its low-interest checking account. You could be earning twenty times that much by investing it.
If you can’t do direct deposit because your job doesn’t offer it or if you can’t get the bank to waive a “minimum,” I strongly recommend that you switch to an online high-interest account that has no fees and no minimums.
And to make this process as easy as possible, you can check out my blog post on saving $1,000 in a month to see my script on getting bank fees waived.
After you optimize your accounts, what’s next?
Optimizing your finances to beat the banks is the first step. But after you set up this system, it’s time to take the next step towards building your Rich Life.
That next step is to earn more money. But that’s easier said than done.
Fortunately, I’ve put together my BEST advice on how you can start earning more money from the comfort of your own home.
To get the free document, just click the link below.