Checking is the new savings, according to a WalletHub report last month, which found interest-bearing checking accounts pay as much as five times more interest on balances up to $50,000 than savings and money market accounts.
But that only scratches the surface of the changes undergone by the banking industry in recent years, according to the report's findings. While certificates of deposit are still best for long-term saving, their interest advantage over online checking accounts isn't as substantial as you might think. For example, locking away $10,000 in a five-year CD will only get you 0.98 percent, on average, compared to 0.53 percent from the average online checking account.
A hierarchy has emerged for checking accounts. The average online checking account charges less per month than the average full-service checking account ($4.34 vs. $5.07) and offers 119 percent more interest (0.54 percent average percentage yield vs. 0.25 percent APY). What's more, 39 percent of online checking accounts are interest-bearing, compared to just 11 percent of traditional checking accounts.
What we have, as a result, is a new age of banking where online checking accounts are at the top of the food chain. Consumers unhappy with their cash-based interest earnings should therefore consider moving their reserves into a new online checking account, especially if they are reticent to invest in the stock market. We all need to make our money work for us, after all, and traditional long-term savings vehicles aren't cutting it in the current environment.
But what caused this shift in banking dynamics, and is this the new normal or just a temporary trend? There are a number of likely contributing factors:
Low Fed rates. You can't expect much from long-term savings products when the Federal Reserve is keeping rates near zero to promote borrowing and stimulate the economy through increased spending.
Money crunch. People simply might not have enough money to be saving in any substantial fashion. The average household has $6,700 in credit card debt; 30 percent of Americans say they don't pay their bills on time; and insufficient savings tops the average person's list of financial concerns, according to studies from CardHub and the National Foundation for Credit Counseling. So it might just be that people simply have more demand for everyday banking tools like checking accounts than they do for savings-related products at this point in time.
Technological advances. It's cheaper for banks to have a website and a call center than physical branches and staff. William Demchak, president and CEO of PNC Financial Services Group (PNC), %VIRTUAL-article-sponsoredlinks%told investors last year that the bank saves $3.88 every time a customer deposits a check via smartphone rather than at a bank branch. Now that Internet usage has become ubiquitous and people are used to doing many things online, financial institutions have the ability to close down some local shops. That at least explains the attractiveness of online checking accounts.
Regulations. Bank oversight has increased significantly in the wake of the great recession, with the 2009 Credit Card Accountability Responsibility and Disclosure Act, the Dodd-Frank Act and the establishment of the Consumer Financial Protection Bureau making compliance more difficult and costly. So, banks could be pushing checking accounts as a do-it-all-option for consumers to eliminate some of the overhead that comes with providing multiple accounts that serve similar purposes to a single customer.
Who knows what the banking landscape will look like five years from now? Sure, we can expect increased chip card availability, mobile wallet adoption and more prevalent use of online payment tools like PayPal. But judging from changes witnessed in the last five years, we're in for a lot more.
If there is one thing we should all remember, it's that labels and past performance don't always accurately predict future outcomes in the banking world.
Why Your Bank Thinks Someone Stole Your Credit Card
Why You Should Close Your Savings Account and Bank Online
One reason why Marquis' gas purchases might have triggered a fraud lockdown? Filling their tank is a common first move for credit card thieves.
"Some of the things they look at are small-dollar transactions at gas stations, followed by an attempt to make a larger purchase," explains Adam Levin of Identity Theft 911.
The idea is that thieves want to confirm that the card actually works before going on a buying spree, so they'll make a small purchase that wouldn't catch the attention of the cardholder. Popular methods include buying gas or making a small donation to charity, so banks have started scrutinizing those transactions.
Of course, it's not a simple matter of buying gas or giving to charity -- if those tasks triggered alerts constantly, no one would do either with a credit card. But Levin points to another possible explanation: Purchases made in a high-crime area are going to be held to a higher standard by the bank.
"It's almost a form of redlining," he says. "If there are certain [neighborhoods] where they've experienced an enormous amount of fraud, then anytime they see a transaction in the neighborhood, it sends an alert."
(Indeed, Erin tells me that one of the gas purchases that triggered an alert took place in a rough part of Detroit, which she visited specifically for the cheap gas.)
People who steal credit cards and credit card numbers usually aren't doing it so they can outfit their home with electronics and appliances. They don't want the actual products they're fraudulently buying; they're just in it to make money. So banks are always on the lookout for purchases of items that can easily be re-sold.
"Anytime a product can be turned around quickly for cash value, those are going to be the items that you would probably assume that, if you were a thief, you would want to get to first," says Karisse Hendrick of the Merchant Risk Council, which helps online merchants cut down on fraud. Levin says electronics are common choices for fraudsters, as are precious metals and jewelry.
Many thieves don't want to go through the rigmarole of buying laptops and jewelry, then selling them online or at pawnshops. They'd much prefer to just turn your stolen card directly into cold, hard cash.
There are a few ways that they can do that, and all of them will raise red flags at your bank or credit union. Using a credit card to buy a pricey gift card or load a bunch of money on a prepaid debit card is a fast way to attract the suspicions of your credit card issuer. Levin adds that some identity thieves also use stolen or cloned credit cards to buy chips at a casino, which they can then cash out (or, if they're feeling lucky, gamble away).
When assessing whether a purchase might be fraudulent, banks aren't just looking at what you bought and where you bought it. They're also asking if it's something you usually buy.
"The issuers know the buying patterns of a cardholder," says Hendrick. "They know the typical dollar amount of transaction and the type of purchase they put on a credit card."
Your bank sees a fairly high percentage of your purchases, so it knows if one is out of character for you. A thrifty individual who suddenly drops $500 on designer clothes should expect to get a call -- or have to make one when the bank flags the transaction. If you rarely travel and your card is suddenly used to purchase a flight to Europe, that's going to raise some red flags.
Speaking of Europe, the other big factor in banks' risk equations is whether you're making a purchase in a new area. I bought a computer just days after moving from Boston to New York, and had to confirm to the bank that I was indeed trying to make the purchase. Levin likewise says that making purchases in two different cities over a short period of time raises suspicions.
"I go from New York to California a lot, and invariably someone will call me [from the bank], " he says. Since one person can't go shopping in New York and California at the same time, any time a bank sees multiple purchases in multiple locations in a short period, it's going to be suspicious.