Banks: Brick and mortar versus online options.

People tend to bank the way their parents did. If your parents didn't use a bank, but rather paid everything in cash, then chances are you use only cash as well. If your parents went to Valley National Bank (in the old days in Arizona), then that is where their children all began to bank early on. I have since learned that many people don't trust banks with their money; I think our level of education has something to do with choosing to use a bank versus paying in cash. Me? I like banks. I adore my credit union in every way possible. I like the ease of use and the more intimate experience. Like in the old days, my credit union knows me and I feel appreciated. I'm a member, and not just another customer. They lead me in positive directions, and they provide me with solid advice when I ask for it; sometimes I don't even need to ask! Once they kept trying to get me to move my money into a better earning account - they politely showed me a better way until, after months of discussions, they convinced me. That was step one for me. 10 years later I have made it to steps 2 and 3!

So what is so different about banking today? We have an onslaught of online banking methods, and a new kind of trust must be built. I am one of the hybrids. I find I want both. I want my local bank, and I want an online bank. Why? Simple; I like money and I want to make it work for me, alongside me, every day, rain or shine. Most brick and mortar banks (the ones you can walk into) don't offer as good of rates as some online banks. Why is that? Because online banks have lower overhead and they can pass the savings on to you, literally. On another level, some banks have gone online and offer both! In the city where they are located you can walk in; but if you live in Tucson, and you like their rates, you can go online and open up an account with them. Neat idea.

It's like this; some banking systems are old fashioned and outdated. Why do they still have them then? Because as a child, a savings account is the first account we usually get. What we learn gets ingrained in our minds as safe and secure. Later on, we get a checking account as that is what "we know" and that is what banks advertise. Yes, these are safe and secure. But how much are you earning? I recently polled 4 people at work; none of them knew what interest rate their accounts had. Enough said. Most people DON'T know.

Online banks can offer you a great place to put your money. How does it work? Well, many times you may have used an online banking method; a debit card is one example, and another is when you call a company and pay by phone. These are "electronic transfers". This is how online banks work. You can move money from your low earning brick and mortar bank to an online bank easily. It took me 5 minutes to set up my online account with ING Direct (one of first and the most popular online banks). Soon, I will be electronically transferring money from my credit union into this this higher earning account (4.5% for an Orange Savings Account). When I need money to pay bills, I can call the 1-800 number, or go online, and move money back home.

Now let's discuss and compare account types: Checking, Savings, Money Market, and CDs.

1. Savings Accounts: Let's begin with my least favorite. Savings accounts really are a dumb move at today's inflation rates. Are you listening?. . . I said regular savings accounts are pretty darn useless! Many offer interest rates of about 3/4 of one percent (clarification...this is less than one percent). After studying and researching all my options I realized I was losing about $400 a year in possible earnings. Why do we all have one then? (o.k. we all don't, but we should cause it's better than nothing)....because it's what we learned about first from a parent or grandparent. Nearly all 9 year old 4-H kids who raised an animal for the fair got a savings account so they could put the money aside and buy an animal the next year. It allowed us to buy our own feed that second year. I loved looking at my "passbook" - remember those! Watching your money save up was incredible! Most kids on my block had a regular savings account too. But, now that I am older and wiser I'll give you a hint; anything called "regular" means there is a better plan out there. The better plan is called a MMA.

2. Money Market Accounts: I walked up to the help desk at my CU and asked about a MMA. She showed me a piece of paper explaining the different accounts (there are both Checking and Savings accounts) and asked me how many withdrawals I might make in one month. Some accounts may limit the number of withdrawals, but their particular savings account does not have that restriction. I could move money any time I wanted into any other account, or withdraw it easily. She explained that the rates "float" depending upon how much money you have in the account; drop below a certain line and your rate drops a bit. Deposit money into it and walla, your rate just shot up a quarter a percent! I said, "What do I have to do?" She said, "Just a minute" and typed away for one minute. Then she said how much money do you want to transfer into it? I had no idea - "Half?" She suggested more, a lot more, and explained that the MMA works much like a regular savings account. It does? Then why don't more people have MMAs I wondered quietly to myself. So that is what I did; I moved about 90% of my money into my "new" account. She said, "Sign here--and this is your new account number." In astonishment I stuttered, "That's it?" She commented, "All done, Maam." Jeeeezzzzzz! I had been procrastinating about this new account for 6 months or longer. Ugh. I had just transferred my "old" savings into a Money Market Savings account in four minutes. Electronic transferring is SO easy. I wanted a cocktail immediately afterward - I wondered how much money had I wasted all these years? Well, I "thought" it would make me another $400 a year. But it turns out it was more like $750 annually, depending upon how much "I blow" on fun trips and luxury purchases. Oh heck, that four minutes just paid for my airline ticket to Ireland or Italy next year. Now I am planning to move most of my MMA money into my new ING savings account...3% versus 4.5% is another no-brain move I feel safe to make.

3. CDs: Certificates of Deposit. Like a savings deposit but the money is locked up. You can't use it for a pre-determined and specified time (your choice); common lock in rates are based on 3 and 6 month rates. There are also, 1, 2, 3 and 5 year rates. Compare them online at http://www.bankrate.com . You guarantee you'll leave the money alone (so the bank can barrow and use the money themselves) and they, in return, give you a great interest rate! With the economy as it is today it doesn't make sense to lock in for extended years, though in volatile years it makes perfect sense. Saving for something specific is easy with a CD, but if you need the money for an emergency there are early withdrawal penalties. All banks and credit unions offer CDs; walk in and just ask for help in opening one. Be aware that online banks often have better rates - MUCH better rates. Now that I have an ING account, I can transfer money and buy one of theirs in less than 5 minutes no doubt. Is there a downside? Not if you know what the penalties are and are prepared. The only other thing I should mention is that you have only a few days (usually around 5) to go and "Get your money back". If you don't, the bank may roll your money back into another CD, locking it up again. Know your bank's policies.

4. Checking Accounts: The most common way to transfer money and pay bills is using a good ol' check. You may even have a debit card attached to your checking to make your life even easier(just make sure you log your debit purchases). Banks have varying fees and charges for these accounts - they vary widely. Do your research online, or go and ask each bank for a pamphlet of their checking programs and fees. Do they offer overdraft protection? Do they charge per check written, or is it unlimited? Do they have an account that earns interest? There are all kinds of checking accounts. Find a good one that works for you. It may be that you really need one that is close to your work or home. Find out if your company can offer automatic deposits - a electronic transfer saves both you and your company time and money. For some people, it means your check may show up on Thursday instead of Friday.

That's the bottom line on some of the more popular accounts- do your homework and choose what is best for you. As you become more at ease, you may find you will want to do more research and make your money work harder for you. I finally did, and so I chose both types of banking institutions. Next up for me is to buy my first CD; a 3 month CD may work well in the coming months as the IRS prepares to take a little more from me. A CD means I won't be worried about paying them come April 2007...and instead of earning 4.5% in my ING account, it will be earning 5.25% ----even better! Cha-ching.....happy thoughts.