Have you heard of premium checking accounts? To sum it up, they’re simply a bank’s top-tier publicly advertised deposit accounts. If you’re a higher net worth individual, you probably have access to other unadvertised accounts through your bank's investment division. But if you’re just looking for an everyday checking account and you’re comparing various banks’ offerings, you’ve probably run across these premium accounts.
Each has a minimum balance requirement to avoid paying a monthly service charge. The question is, are you better off leaving less money in your bank or signing up for a premium checking account?
Of course, there’s no one-size-fits-all answer but here are some questions to ask:
1. How often do you use ATMs? One of the big perks that come with premium checking accounts is the fee-free ATM transactions at company ATMs. At non-bank-owned ATMs you still have to pay the ATM owner’s fees in most cases, however. If you don’t use ATMs regularly, this perk may not be important to you.
2. Does your balance fluctuate? Often, the fee-free offerings include some number of free overdraft balance transfers and stop payment requests. If you’re able to meet the minimum balance requirements of these top-tier accounts, chances are high that you’re not using overdraft protection anyway. And for most people, stop payment requests aren’t a normal occurrence.
3. How much do you care about getting interest on your account? Calling these accounts interest-bearing looks impressive in an advertisement, but it’s barely worth considering. Sure, nobody will turn down free money but Chase, for example, currently offers an APY of 0.01%. On a $50,000 balance, that works out to $5 per year.
4. Does the account offer rewards points? You might receive rewards points in conjunction with the credit card you hold at the bank. Not all banks offer rewards, but you can factor them into your decision.
If you look at premium checking with the eyes of an investor, probably not. Without going outside of your bank, you could earn nearly 1% on a one-year CD or nearly 1.7% interest on a five-year CD. Money Market accounts yield slightly less, but are comparable to CDs.
Outside of banking, bonds or dividend (or distribution)-paying stocks, ETFs, or MLPs yield anywhere from 1% to 10% or more, depending on your risk tolerance. If you have $15,000 to $75,000 to keep in a checking account to meet the minimum balance requirements, that money can work harder for you in other financial products. On the other hand, many of these accounts will credit you for money you keep in linked investment accounts within that banking family, so you may be able to accomplish both at the same time. For example, the Bank of America Premium Solution account, which requires a $20,000 balance, is linked to Merrill Lynch and Merrill Edge investment accounts.
What's more, you still have to keep some money in a checking account to pay bills. If you or your family utilize banks services regularly, a premium checking account will likely save you money in ATM fees. Premium accounts might also get you slightly lower loan rates or perks from the bank’s investment division.
Although premium accounts have a minimum balance requirement that make them look like a product for the wealthy, they are available to just about anybody willing to pay the monthly fee if he or she can’t meet the balance requirement.
Keeping a five-figure balance in your checking account for a long period of time to avoid a monthly fee probably isn’t a good financial strategy. But in the end, it depends how much you’re using your bank’s other services. For more information, see Top Premium Checking Accounts of 2015 and Best 2015 Checking Account Promotions.