Personal Finance in Your 20s and 30s: Your Banking Alternatives
Other financial companies have cost advantages similar to — and in some cases even better than — those of banks, which translates into better deals for you. This article addresses two alternatives to bank accounts you may want to consider.
Brokerage accounts with check writing
Brokerage firms enable you to buy and sell stocks, bonds, and other securities. Charles Schwab, Scottrade, E*Trade, TD Ameritrade, and Fidelity are among the larger brokerage firms or investment companies with substantial brokerage operations you may have read or heard about.
Some of these firms have fairly extensive branch office networks and others don’t. But those that have a reasonable number of branch offices have been able to keep a competitive position because of their extensive customer and asset base and because they aren’t burdened by banking regulations (because they aren’t banks) and the costs associated with operating as a bank.
A type of account worth checking out at brokerage firms is an asset management account, also referred to as a cash management account. Although the best deals on such accounts at some firms are only available to higher-balance investors, the best of these accounts typically enable you to
- Hold and invest in various investments (stocks, bonds, mutual funds, and so on) in a single account
- Write checks against a money market balance that pays competitive yields
- Use a Visa or MasterCard debit card for transactions
Money market funds
Basically, a money market fund is very similar to a bank savings account except that mutual fund companies offer them, which means they lack FDIC coverage. Historically, this hasn’t been a problem, because retail money funds have lost shareholder principal only in one case (the Reserve Primary fund lost less than 1 percent of investors’ money).
The attraction of money market funds is that the best ones pay higher yields than bank savings accounts and also come in tax-free versions, which is good for higher-tax-bracket investors.