On May 29th, the FDIC issued a ruling [PDF] that would limit future interest rates offered by FDIC-insured banks which were deemed “less than well-capitalized”. This was viewed by some as a response to a complaint filed earlier with the FDIC by the American Bankers Association (ABA), a bank lobby group representing all the mega-banks. The ABA said that it was unfair that Ally Bank could offers such high interest rates when its parent GMAC was accepting government assistance.

How weak is weak?
A bank can be classified as “well-capitalized”, “adequately-capitalized”, and different levels of “under-capitalized”. An insured depository institution is “well capitalized” if it “significantly exceeds the required minimum level for each relevant capital measure” set by the FDIC. According to this Bloomberg article, only 3% of banks are not well-capitalized.

Rate cap details
If a bank is not well-capitalized, then it cannot offer interest rates greater than 0.75% higher than the “national rate”, which is just an average of rates paid by all U.S. depository institutions. As of June 1st, these maximum rates would theoretically be:

Not exactly yields I’d whip out my SSN for. I dislike the idea of messing with free markets and competition, but I can see how the FDIC would want to prevent weak banks from offering high yields as a last ditch effort at survival, only to end up needing even more FDIC funds. However, using an average can be misleading as there are plenty of big banks (ABA members *cough*) with piddly yields for no good reason besides they have inertia and can get away with it. Of course some banks will offer yields well above market to attract money. How else do you propose they do it?

Not as bad as you think
This announced stirred up a lot of speculation that a bunch of high-yielding banks like Ally would soon be forced to lower their rates. But we have already seen that only 3% of banks are not well-capitalized, so there will still be 97% of banks competing to get our money. Also, the ruling does not become effective until January 2010, so rates aren’t going to be capped any time soon.

Specifically, the GMAC/Ally Bank CEO Molina has just publicly responded by stating that Ally Bank is definitely well-capitalized, in fact better capitalized than some of the ABA’s members. Ha!

I received a notice that EverBank is making a few changes to some of their more popular accounts as of June 1, 2009. Below is a summary.

FreeNet Checking
The Everbank FreeNet Checking account is their high-yield checking account with ATM rebates. The current promotion is a introductory rate of 1.10% for the first 6 months, and then a tiered yield from 0.70% to 0.86% APY.

• Online Billpay Requirements. The minimum balance required to get optional online billpay for free increases from $1,500 to $5,000. Otherwise, the monthly fee for billpay rises from $4.95 to $8.95. In my opinion, this doesn’t make any sense. Most banks offer billpay for free in order to attract balances. If you pay bills, you gotta have money flowing in, right? However, if you don’t use this service, there is still no monthly fee or minimum balance requirement for just the checking account.
• Automatic ATM Rebates. EverBank will now automatically reimburse up to $6 per calendar month in U.S. ATM fees if you maintain a $5,000 average monthly balance. Before, you had to send in ATM receipts in prepaid envelopes. They continue to not charge any ATM fees on their end, for either domestic or international ATM usage.
• $50 Satisfaction Guarantee. They always had it, but had stopped advertising it for a while. To qualify, first you must be a new customer, open an account, and make 3 bill payments. Then, if you still choose to close your account within 30 days of your 3-month anniversary, they’ll send you a check for $50.00.

Yield Pledge Money Market
The Yield Pledge Money Market account is their high-yield savings account, offering a 6-month bonus rate of 1.10%. The regular rate is currently 0.86% APY. The account “pledges” to stay amongst the top 5% of competitive banks. Sadly, these rates are competitive these days.

• Minimum Balance Requirements. The monthly account fee if you don’t maintain the minimum balance will rise to $8.95 from $4.95. The minimum balance itself will rise to $5,000 from $1,500.

I guess they are trying to clear out the lower balance accounts. These follow changes from Bank of America and WaMu/Chase. You can read my Everbank application review here.

I recently received a pamphlet about the “improvements” that Bank of America is making on several of their checking accounts. But after reading through it, all I see are a bunch of small fee increases.

For example, many people have the MyAccess checking with no minimum balance requirement and no direct deposit requirement. Now, the monthly fee is either $8.95 or you need a direct deposit. And you can now be dinged by the $35 overdraft fee up to 10 times in one day. I guess they aren’t scared of another class action lawsuit. You can see all the pricing changes outlined here.

I guess they need to drum up some more money somehow, and most of the fees are still avoidable. But given that around 27% of their revenue comes from fees, and that there were $36.7 billion of overdraft charges by banks last year, I really think this is another reason banks are pushing their debit cards so much. Not only do they earn transaction fees, it makes it that much more likely that people rack up more overdraft fees. Imagine this: You lose track of your balance once, but make 5 small purchases over two days before realizing. That’ll be $175, please!

Be careful out there… those “free” checking accounts have to be paid for somehow.

If you have your cash spread out across several bank accounts, whether it’s to help with chasing higher interest rates, paranoia, or saving for different goals, it can become quite a hassle to transfer money between accounts. I get asked all the time about how I juggle them all.

Part of my solution is to utilize the E-Trade Complete Savings account to connect them all together. This is basically E-Trade’s version of the online savings account which I’ve had for years. From my experience, the interest rate goes up and down (it is currently a so-so 1.20% APY), but it works very well for me as my bank “transfer hub”.

What are some important things to look for in such an account?

Basics and Cost
To start off, you’ll want a bank that offers a very low minimum balance and no monthly fees. A decent interest rate would be good, but a top interest rate isn’t critical since this isn’t where you’ll be keeping the bulk of your funds. You might want to keep a little bit of cash here in case you need to transfer some out quickly, and also to keep your bank from closing out an empty account.

Transfer System
Just about all banks allow ACH (automated clearing house) transactions, but you have one party initiate such transactions, and many “old-school” banks don’t do this. Accordingly, you’ll want your hub account to have the ability to “push” or “pull” funds in and out of multiple external bank accounts, with no transfer fee. Some banks only let you link one or two accounts, while others charge you to initiate transfers. For example, Bank of America allows you to move money to BofA for free, but charges if you move money from BofA using their system.

The E-Trade Complete Savings account has no minimum balance and no monthly fees, you can link an unlimited number of accounts, and there are no transfer fees.

Transfer Speed and Interest Crediting Policy
Of course, you’ll want fast transfer times. Some banks take 3 business days to move money in either direction, with your money in limbo and not earning interest anywhere. However, E-Trade is much faster, with transfer times of only 1 business day (which is how long it should take…). Also, if you schedule a funds transfer from an external account to E-Trade before the end of the business day at 4pm EST, they will actually credit your account the same day, even before they withdraw the money (although to prevent fraud you can only withdraw after 3 business days). However, you will start to earn interest starting that day, even before the money actually get debited from your source account!

Here is a sample screenshot:

In fact, if you initiate a transfer on Friday, you can earn interest at both accounts over the weekend. Here is a sample timeline:

• Friday: You schedule a transfer of $1,000 from Bank A to E-Trade. You start earning interest at E-Trade on Friday. Nothing has happened at Bank A.
• Monday: $1,000 is withdrawn from Bank A.
• Thursday: $1,000 is now available to withdraw from E-Trade. You schedule a transfer to Bank B. $1,000 is debited from your account at E-Trade.
• Friday: $1,000 arrives at Bank B.

Yes, it will take you a week to move the money, but you’ll be earning interest the entire time due to the double-interest over the weekend. Compare this to other accounts where the money is in limbo for 3-5 total days (3 business day + weekends/holidays) and you’re earning zero interest during that time.

For these reasons, I think the E-Trade Complete Savings account is very useful for the ability to connect any two bank accounts and move money relatively quickly with minimal interest loss. If you already trade stocks with them, it’s basically a no-brainer given the horrible yields on money market funds right now.

I have also heard good things about the transfer speed at GMAC Bank, but I don’t know if it’s quite this good as I don’t have any personal experience with them. I’m also concerned about how GMAC Bank will be around… if they get bought or sold to another bank, the website may disappear as well. I’m already going to miss my WaMu interface when I get forced over to Chase next month.

I haven’t been much of a interest rate-chaser recently, and it feels like it’s been a while since I’ve opened up a new bank account. For one, I already have a lot of my cash tied up in CDs and I-Bonds. Also, most of my recent cashflow has been going into 401k and IRA contributions.

Now that I have a bit more free time, I decided to open up a new “Rewards Checking” account at Evantage Bank. It offers 5.25% APY on the first $10,000 in balances, and 2.25% APY for anything over that if you meet their requirements of electronic statements and 10 debit card purchases per month. I liked it because it was available nationwide, there were no minimum balance requirements, and didn’t have a direct deposit requirement.

In addition, they have a “Mega Money Market” savings account that is currently paying 3.10% APY on balances to $35,000. (No debit requirements.) So you could keep a total of $45,000 parked at Evantage at a combined interest rate of 3.58%. Not too shabby in this current environment. Alternatively, you could open a second Rewards Checking account and get another $10k at 5.25% (but also with another 10-purchase commitment).

So far, the account application was run by CashEdge, with the usual informational requests and ID verification using questions based on your credit report. The process was completely online, with both online signature cards and an ACH transfer option for initial deposit. I’ll provide a better update once I get started.

I’ve written about rewards checking accounts in the past. They are a gamble and you can earn very little interest if you don’t pay attention to the requirements. In addition, the rates can drop quickly. Look at your own habits, and hopefully these rates will stay competitive for a while.

Evantage is one of identical triplet banks, along with Redneck Bank and AmericaNetBank, which are all owned by the Huckabay family of Oklahoma. The three banks reportedly have different gimmicks to attract publicity – supposedly the redneck, patriot, and high-tech crowd? Apparently it worked, because Redneck Bank isn’t even taking new applications as of yesterday.

Well, it was about time. The SEC released a press release yesterday stating that they have frozen the assets of the offshore Millennium Bank and its parent, United Trust of Switzerland S.A.

If you don’t recall, Millennium Bank offered certificates of deposit paying insanely high rate north of 8% APY for the last several years. I stopped short of calling it a scam, but pointed out that common sense would state that such increased return could not exist without significant added risk. From the press release:

Washington, D.C., March 26, 2009 — The Securities and Exchange Commission has obtained an emergency court order halting a $68 million Ponzi scheme involving the sale of fictitious high-yield certificates of deposit (CDs) by Caribbean-based Millennium Bank.

The SEC alleges that the scheme targeted U.S. investors and misled them into believing they were putting their money in supposedly safe and secure CDs that purportedly offered returns that were up to 321 percent higher than legitimate bank-issued CDs.

The bank was supposedly based in the Caribbean nation of St. Vincent and the Grenadines (SVG), which had access to high-yielding, safe investments. In reality, the SEC managed to trace the money sent by gullible investors from the offshore back to a US bank account in Napa Valley, CA, where the defendants “misappropriated a vast majority of the investor funds to enrich themselves and pay personal expenses, while making relatively small Ponzi payments to investors.”

According to the SEC’s complaint, the $68 million was raised from more than 375 investors since July 2004. I wonder how much is left. Another case of greed blinding people…

Please don’t confuse this bank with the legitimate and FDIC-insured Millennium Bank of Illinois.

Last week, I heard a co-worker complain about being denied when trying to open a new checking account. I told her to check her ChexSystems report. ChexSystems is a consumer information database that contains information about your banking history, similar to credit bureaus and your credit history. Turns out she forgot about an account and actually owed some other bank some money (probably just piling on inactivity fees…).

For the same reason, you have the right to a free ChexSystems report once a year, just like the annual credit reports. In addition, you can request one whenever you get declined for a bank account where ChexSystems was used.

I decided to get my own as well, and surprisingly it came via snail mail within a week or so. I say surprisingly because last time I tried to order a couple of years ago, I don’t think I ever got it. (I have never had trouble opening a bank account, so I figured nothing bad was on it.)

They have a sample ChexSystems report online, which looks exactly like what I have, and explains all the items they have recorded:

Reported Information
“Reported Information refers to reports of accounts that have been mishandled, reported for cause, and/or outstanding debts. Reported Information is submitted directly to ChexSystems by members of our service, which consists mainly of financial institutions. Our current practice is to retain this information for a period of five years.”

This includes account closed due to repeated bounced checks, or overdraft debts that were never paid. If you have one of these in error, you’ll definitely want to clear it up.

Inquiries Initiated By Consumer Action
“Inquiries Initiated By Consumer Action refers to inquiries resulting from a transaction initiated by you. These include applying for a credit card or completing an application at a financial institution. Please note that the inquiries are part of your credit history and may be included in our reports to others. These inquiries can be viewed for ninety days up to three years. ”

Basically, a list of all banks that applied for within the last 3 years that used ChexSystems to verify me. They included KeyBank, E-Trade, FNBO Direct, WaMu, DollarSavingsDirect, and WT Direct. Banks that I know that I applied for recently that weren’t on the list include EverBank, which makes sense since they used the Equifax ID check service during my application process.

Inquiries Not Initiated By Consumer Action
“Inquiries Not Initiated By Consumer Action refers to inquiries resulting from transactions you may not have initiated, so you may not recognize the source. Members of our service with a permissible purpose include current creditors, pre-approval creditors, and potential investors trying to assess risks. We report these requests only to you as a record of activities, and we do not include any of these requests on credit reports to others.”

The only bank listed here was Washington Mutual. For some reason, they made three inquiries in one day back in 2006. Weird.

Retail Information
“Retail Information refers to returned checks written on an account and certain collection accounts. Retailers and other businesses report this information to Shared Check Authorization Network (SCAN). ChexSystems receives this information directly from SCAN and is not involved in the collection of these items.”

Nothing here, I believe it counts bounced checks reported by merchants.

History Of Checks Ordered
“History of Checks Ordered refers to a record of check orders placed within the past three years.”

Nothing here, either. Probably because I would never order from Deluxe Corp. (which owns ChexSystems) since they are horribly overpriced. I barely make it past the starter checks usually, but if I do need checks I buy them from Costco.

Social Security Number Validation
“Social Security Number Validation indicates the year and state that a particular sequence of digits first became available for issuance. This information does not include the name of the individual to whom the number was issued.”

It says my SSN became available for issuance in 1987. This is interesting, considering I was born nine years before then…

Drivers License Validation, Drivers License Verification
“Drivers License Number Validation indicates whether or not the format of the drivers license number provided matches the requirements set by the state of issuance. Drivers License Number Verification is information provided to ChexSystems by the state that issued the drivers license number. This information, which is limited to certain states, identifies the name and date of birth of the individual to whom the drivers license was issued.”

Added: A smaller competitor to ChexSystems is TeleCheck. To get your free annual report from them, you must call 1-800-366-2425. I called them on 1/11, and they stated that they had no negative information me, so there was nothing to send me.