Here's an article from last week about E-Trade Bank and others that is interesting and positive for those who might have missed it.
WASHINGTON, Feb 23 (Reuters) -- ``Compare us to your current bank!' E*Trade beseeches its online customers in the latest salvo in the war of the bankers versus the brokers. Though banks received more securities powers from Congress last year, it's the brokers who have been more aggressive with offerings that look, taste, and act exactly like bank checking accounts, only with better rates of return.
These accounts are traditionally aimed at investing clients that have solid portfolios, so many ordinary paycheck-to-paycheck consumers have kept away. But look again. With IRAs and the tremendous stock market gains of the past five years, many more consumers are eligible for these accounts. And they are worth a second look.
The typical brokerage checking account looks different from a bank account, even though in the case of E*Trade, the firm set up a banking subsidiary to create it. Brokerage checking accounts tend to have minimum balances in the $10,000 range (though this is often waived if you do a certain amount of other investing with the firm). E*Trade, the No. 2 U.S. online brokerage and part of E*Trade Group (NasdaqNM:EGRP - news), requires a minimum balance is $1,000.
The interest rates the brokers pay are quite a bit higher than the typical checking account; many are now paying more than 5 percent. Merrill Lynch & Co. Inc. (NYSE:MER - news), which invented the whole concept with its Cash Management Account in the late 1970s, recently quoted a 5.32 percent yield on its account.
The advantages to these accounts can be considerable. Families can consolidate their finances into fewer accounts; a checking account paying more than 5 percent interest is a fine place to accumulate an emergency fund. Used correctly, these accounts can encourage consumers to save and invest more; it only takes a phone call or a few clicks of the keyboard to move money from a cash management account into a related brokerage account.
But most of these accounts also have some costs associated with them -- quarterly fees of $15 to $25 that can be waived with sufficiently high balances and charges for returned checks or copies of cleared checks.
In addition, though many of these accounts offer ATM cards and don't charge for ATM withdrawals, the brokerage firms don't have their own teller machines like the banks do. So if you make a lot of ATM withdrawals, you still will pay hefty charges to the owners of the machines. Charles Schwab & Co. Inc. (NYSE:SCH - news), the No. 1 U.S. online broker, offers rebates of those ATM fees with its Access account, a super checking account that is only available to customers with $100,000 in assets or 12 commission-paying trades a year.
Other brokers offer other bells and whistles. E*Trade offers automatic overdraft protection; you'll pay $5 every time you use it, but you won't bounce checks. Donaldson, Lufkin & Jenrette (NYSE:DLJ - news) offers free checking along with free check returns to its customers. But in a recently published comparison, DLJ was paying lower interest than many of its competitors.
Because of the variety of offerings, there's no quick way to determine which one is the best account. Investors who already have an account with a major brokerage firm can find out what is already available to them. Those considering consolidating a number of accounts with a new firm should shop for those checking privileges first. Make sure that you find one that fits the way you want to use your checking account. Some to try are: E*Trade (http://www.etrade.com or 1-800-TELEBANK); Charles Schwab (http://www.schwab.com or 1-800-225-8570); Merrill Lynch (http://www.ml.com or call your local broker), and Donaldson, Lufkin & Jenrette (http://www.dlj.com or 1-800-825-5723). |
