8 Online Banks That Let You Skip the Fees, Enjoy the Interest

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The goal of a checking account should be to find an FDIC-insured bank with few or no fees. Unfortunately, millions of Americans are banking with enormous brick-and-mortar banks that charge monthly maintenance fees, as well as a host of punitive fees such $30 or more for overdrafts. Some of those friendly financial institutions are raking in nearly $1 million per branch in fees alone.

Thankfully, the Internet is good for something other than supplying us with funny cat videos and quizzes to tell you which type of fast food your personality is like. The Web is now a safe haven for consumers looking for low-cost banking options that still offer all the safety the comes from being backed by the Federal Deposit Insurance Corp.

Internet-only banks are able skip those ugly fees and still offer higher interest rates than their traditional peers because they don't have to deal with the costs of maintaining neighborhood branches.

"Most customers today don't go into a retail branch, so we never built them," says Kyle Kolsky, senior vice president of consumer deposits for Bank of Internet USA (BOFI). "We operate from one large headquartered office and give those savings back to our customers in superior products."

Some Internet-only banks are associated with well-known players like Charles Schwab (SCHW) and Capital One (COF). The institutions on the list below are the underdogs looking to revolutionize banking -- and help you keep more money in your pockets.

1. Bank of Internet USA: A No-Fee Account + 1.25 APY

Got $100? Then consider opening a Bank of Internet USA rewards checking account. It has no fees. Before you let cynicism set in, look at these account details:
  • Unlimited domestic ATM reimbursements -– you'll be refunded for any fees by the end of the next business day.
  • No monthly maintenance fee.
  • No minimum monthly balance.
  • No overdraft or non-sufficient funds fee –- you chose a line of credit on overdrafts or a link to your savings account at no charge to move the money.
  • Cash back on debit card purchases.
There is complicated fine print regarding the rewards. Bank of Internet USA advertises the ability to earn up to 1.25 percent annual percentage yield. However, you need to jump through some hoops to earn that 1.25 percent month-to-month, mostly by being chained to a debit card:
  • Direct deposits totaling $1,000 or more earn 0.4166 percent.
  • At least ten debit card purchases earn 0.4166 percent.
  • 15 or more debit card purchases earn an additional 0.4166.
For most credit card rewards churners, this account is unlikely to reach its full 1.25 percent APY potential, but even 0.4166 percent is higher than your average checking account interest rate. A daily collected balance in excess of $150,000 will not earn interest. Then again, you probably shouldn't park $150,000 in a checking account either.

Savings account: Bank of Internet USA's high-interest savings account earns 0.61 percent. While it offers the best deal we found for a checking account, you should take your savings elsewhere.

2. Bank5 Connect: No ATM Fees (to a Point)

Bank5 Connect offers a checking account with only a $10 minimum opening balance. It is a good option for people who don't regularly use an ATM. Any ATM fees charged by a terminal are reimbursed, but only up to $15 per statement cycle.

There are no monthly maintenance fees, and Bank5 Connect offers the first order of basic checks free. If you opt in for overdraft protection and link to a savings account, there is no charge on overdrafts. If you don't have overdraft protection, you'll pay $15 for an overdraft or non-sufficient funds charge.

Bank5 Connect offers 0.76 percent APY on balances over $100 -- without hoops to jump through.

Savings account: Bank5 Connect offers a 0.90 percent APY on savings accounts with balances over $100. This is a highly competitive rate.

3. Simple: No Overdraft Charges (and It'll Make Checks for You)

Simple, operated by The Bancorp Bank (TBBK), offers users a checking account with no minimums, no overdraft fees and no monthly maintenance fees.

If you've heard of Simple, it might be because it bought some customers pizza after an all-day outage impacted 10 percent of its clientele. It also threw in $50 cash. Simple has also come under fire recently about technical glitches impacting the scheduled payment features on the site.

Need a check? Simple will print it, address and mail it at no cost to you.

Simple uses STARsf ATMs for fee-free cash withdrawals. If you're charged a fee by an in-network ATM, Simple will reimburse you. Simple won't reimburse the charge from outside the network.

Simple is not particularly competitive on interest rates. In its FAQ section, Simple states: "Our bank partner's interest rates are generally comparable to those of other banks for the type of account we offer. That said, they are fairly nominal at the moment. If you're looking for a high-yield savings account, Simple probably isn't the best option for you."

4. Moven: Pay Your Friends Via Text

Moven provides a similar feel to Simple. Branded as a "debit account that tracks all your money for you instantly," Moven is an app available on both Android and iOS devices. It only left its beta-testing period in early March, but it's backed by CBW Bank, which provides the FDIC insurance. The app works as a budgeting tool, allowing people to see real-time updates about their spending habits, receive alerts, and view analysis.

There are no fees associated with Moven (and yes, that does mean no overdraft fees), unless you use an ATM outside of the STARsf network. Then you're subject to fees from the ATM terminal, which Moven does not reimburse.

Similar to money transfer platforms like Chase (JPM) QuickPay or Venmo, Moven allows users to send money to friends via Facebook (FB), email or text message, even if the friend isn't a Moven user.

5. TIAA Direct: A Good Deal If You Have Overdraft Protection

TIAA Direct bank has the potential to be a fee-free account -- if you never overdraft it or have overdraft protection.

Only $25 is needed to open an account, and there are no monthly fees, no minimum balance, and no ATM fees if you stay within its large associated network. If you go overdraft without protection, it's a $25 charge per transaction with a maximum of $75 in a day. That's a very steep overdraft charge -- close to what you'd pay a big bank. However, TIAA Direct doesn't charge to transfer your money from savings to cover an overdraft. By comparison, Bank of America (BAC) charges $10 to transfer money from a customer's savings account to checking to cover an overdraft.

TIAA Direct also offers tiered interest on its checking account, with 0.15 percent being the maximum available to accounts with $25,000 or higher.

Savings account: It has an opening minimum of $25 with a 0.80 percent APY.

6. EverBank (EVER): Bonus Interest Rate, but ...

When you open an account with EverBank, you get a bonus interest rate of 1.40 percent on all balances under $100,000 for the first six months. After six months, interest drop to rates ranging from 0.85 to 0.98 percent for the first year, which are still high for a checking account; after the first year, APY drops to rates ranging from 0.30 percent to 0.61 percent.

Customers can only earn 0.61 percent on amounts from $100,000 to $10 million. And you should probably invest amounts that high someplace smarter.

Potential customers do need $1,500 on hand to open an account, which is quite steep compared to other Internet-only banks.

EverBank doesn't charge a fee to use ATMs, but will only reimburse ATM fees if you keep a minimum of $5,000 in your checking account.

Overdrafts cost $30 each with no cap on how many overdraft fees get charged per day. So you'd better have overdraft protection with this account, which is arranged through a credit line. The associated fees will depend on the APR of the account.

Savings: Its money market offers a first year APY of 1.01, with a 1.40 percent bonus on the first six months up to $50,000. Ongoing rates are 0.61 percent. The five-year CD offers 1.92 percent APY. A one-year CD earns0 .70 percent.

7. Gobank: The Sort-of-Fee-Free Account

Gobank claims that it's fee-free, but there are quite a few qualifiers hedging that statement. To avoid the $8.95 monthly membership, you must make direct deposits totaling at least $500 a month. Stay in-network for ATMS to avoid the $2.50 charge from GoBank on top of the ATM's fee.

Gobank charges $22.95 to open an account ($20 minimum deposit + $2.95 starter kit). It doesn't charge overdraft fees, non-sufficient fund fees or penalty fees. It doesn't even offer protection -- your purchases should be declined if you overdraft.

One of Gobank's advantages is the ability to deposit cash for free at participating stores, including Walmart (WMT).

Customer complaints include checks taking too long to clear, which you'll need to consider if you set up bills to be automatically paid via that checking account. You don't want to wind up in a delinquent bill situation because funds you've deposited don't clear in time.

8. Ally (ALLY) -- Minimal Fees and 24/7 Service

Ally is a top-contender in online banking. Among its selling points:
  • No ATM fees (and it reimburses charges from ATM operators).
  • No monthly fee.
  • No maintenance fee.
  • No overdraft fees with protection (There's a $9 overdraft fee without protection, but a maximum of one charge per day).
  • 24/7 customer service.
Ally also offers one of the highest savings account interest rates in the market at 0.90 percent. Deposit $10,000 and earn $90.41 in interest over a year instead of $1 from the big four banks.

Ditch, Switch and Save

MagnifyMoney.com (where I work) offers rankings of all these Internet-only checking and savings accounts, and more, plus customizable tools to see which one is best for your goals.

Erin Lowry writes for DailyFinance on issues relating to millennials, money and personal finance. She is the blogger behind Broke Millennial, where her sarcastic sense of humor entertains and educates her peers. She is also the brand and content manager for MagnifyMoney.

10 Signs You Are Headed Toward Financial Ruin
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8 Online Banks That Let You Skip the Fees, Enjoy the Interest

The first step is to know how much you currently owe on each credit card, said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, the Washington, D.C.-based national nonprofit financial counseling organization.

If you don't know, you're doing personal finance wrong.

"Burying your head in the financial sand won't solve anything -- there are no answers down there," she said.

Reviewing your credit report and score in the past 12 months can point you toward any discrepancies or errors which you can dispute easily. Ensuring that your credit score is higher than 600 important and will enable you to receive lower interest rates when it comes to buying a car or house or obtaining other loans. Your creditworthiness is ranked from 300 to 850.

Another indicator that you are heading for trouble is if you find yourself near the maximum amount allowed on your lines of credit. If you're considering applying for new lines of credit because the existing ones are maxed out, you'll only make matters worse, NFCC's Cunningham said. "The last thing you need is more credit," she said. "Instead, probe to see why you are relying so strongly on credit cards to support your lifestyle."

It's important to minimize "percentage utilization" and maximize "credit available," said Kevin Gallegos, vice president of the Phoenix operations with Freedom Financial Network, a company which helps consumers with debt issues.

"If you have a credit card with a limit of $10,000, and you owe $3,500 on it, that's 35 percent utilization," he said. "Anything over 35 percent is considered is high, a warning sign that you may be living beyond your means and can impact credit scores."

Consumers who are current on their vehicle payment are a step ahead of their counterparts; if you're behind, you're on a rocky financial road.

If you are facing a money crunch, prioritize your bills, including making payments for your apartment or house and your monthly auto loan.

Another indicator that you are nearing serious financial issues is you have overdrawn on your checking account more than twice in the past 12 months. The overdraft fees are only adding to your dilemma. Instead, use free budgeting software or load an app from your bank that allows you to check your balance as often as you need to, even if it is daily. Some bills take longer to clear, so your current balance may not reflect that.

If you lack an emergency savings account, you could be headed for disaster if you run into car problems, lose your job or have a minor accident that prevents you from working. Only 51 percent of Americans have more emergency savings than credit card debt, according to a Bankrate.com (RATE) report. The survey also found that 28 percent of people have more credit card debt than emergency savings, the highest percentage in the past four years while 17 percent have neither emergency savings nor credit card debt.

"Since the recession, people recognize how important emergency savings is," said Bankrate's McBride. "They have less appetite for credit card debt. Despite that recognition, people have had a difficult time making headway for savings in an environment where income is stagnant."

Receiving collection calls and notices is another sign that you aren't living within your means. Many creditors are willing to negotiate your payment amount or waive some fees temporarily so consumers who try to seek a remedy before their debt goes into collection are facing less damage to their credit score.

Consumer spending can easily wind up being bad debt, which is debt that is used for the consumption of goods with little to no long-term value or goods with diminishing value, said Jason Ayala, a private wealth adviser in Phoenix for Ameriprise (AMP), the financial services company.

"An example of bad debt is carrying credit card debt that was used to subsidize a standard of living that exceeds your income," he said. "If used appropriately, debt can be a very powerful and beneficial tool -- if not it can derail even the best laid financial plans."

Even if it was a one-time occurrence, applying for a credit card cash advance, payday loan, title loan or borrowing from your 401(k) or IRA in the past 12 months is a sign that you need to regain control of your finances.

"Adding new debt on top of old is a financial death trap," Cunningham said. "Balances grow, and you end up paying interest on the interest. Digging out of debt is impossible unless this practice stops."

If you are spending more than 28 percent of your gross salary paying rent or your mortgage that hampers your ability to maintain a moderate standard of living. Some lenders approved mortgages for homeowners to borrow up to 35 percent of their income during the past decade, but experts advise against spending that close to the threshold. Consider refinancing your mortgage, obtaining a roommate or at least cutting back on other bills or expenses. The 28 percent mark is a good rule of thumb, but it may vary depending on where and how you live, Gallegos said.

"Someone who lives in the heart of San Francisco or Manhattan and doesn't own a car may have a higher percent for the home category, but a lower allocation for transportation," he said.

Being able to maintain your current lifestyle without using your credit cards is a good sign. In July, total consumer revolving debt, which includes credit card debt, rose by 7.4 percent from June.

"This is a time when consumers can and should be saving more of their personal income compared to driving up debt," Gallegos said.

Consumers should aim to save 10 percent of their income.

Living within your means on a daily basis and using credit cards only in real emergencies is the best option.

"Paying down credit card debt is one of the best investments you could ever make since the effective rate of return easily can approach 20 percent," he said. "In addition, having no credit card debt is in itself a financial cushion. It will require strict discipline, belt-tightening and a revision of your goals."

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