Wednesday, October 19, 2016

First Steps: A Personal Finance Toolkit

Today's post is about some of the first steps one should take in one's personal finance journey: The selection of bank accounts and investment products that avoid unnecessary fees and maximize possible gains. I will also write a separate post later with some bonus tips about useful software tools and the credit cards I like. Although the month to month benefits of some of these choices are extremely small, they add up over time. These are all very basic suggestions, but important ones. Note that all of these suggestions are specific to USA residents. No referral or affiliate links here. None of my accounts or cards offer referral programs particularly amenable to sharing on a blog. 

Step 1: Get a checking account that is as close to no-fee as possible. 
  • Above all else, one should not be paying a monthly account maintenance fee, whether because the account is no fee or because one consistently stays above the minimum balance. 
  • Ideally, one should also never need to pay ATM fees either, at least in the US, whether because the bank has ATMs everywhere you need or because the bank refunds ATM fees. 
  • One might prefer a bank with easily accessible physical branches. I only end up needing to talk to a bank teller maybe once a year, at most, for something that can't be done online or at the ATM. 
  • As a traveler who likes using ATMs to get cash abroad, which has the advantage of allowing access to foreign currency at the prevailing exchange rate and without the markup one gets at a currency exchange, I require at least one account with no foreign ATM fees and no foreign exchange fees. (Bank of America started charging a 3% exchange fee on all foreign currency withdrawals in the last three years, which is awful.) 
  • Being interest-bearing could be a plus, though I prefer funneling savings into a higher interest savings account straightaway, so checking account interest rate is a negligible factor.

Many say that local credit unions are a good option for low or no-fee accounts, though that's never been a real option for me because I've moved so frequently. Many big national banks, certainly Bank of America ("BOA"), are terrible for fees, though I've stuck with BOA as my primary checking account nonetheless. (I have an "online only" type account that is no-fee if I don't go to a teller for any services that can be done at an ATM. They offered this in 2010 when I called to complain about being charged a monthly fee after I was no longer eligible for the free student account.) I don't know if my account type is available to new customers. (BOA has always been good about refunding any unreasonable fees that I called to get rid of, or else I'd have gone to another bank.) P.S. if your bank (or any other company) ever attempts to charge you a fee that is a complete surprise to you and/or that you didn't agree to, it can't hurt to call and try to get it reversed (politely)! It's always worked for me, even at the very unpopular with most other customers BoA.

As for concrete recommendations, I also use the Schwab High Yield Investor Checking Account, which has no monthly maintenance fee, no minimum balance, refunds ATM fees from anywhere in the world, has no foreign exchange fee, and is interest-bearing, with a variable interest rate currently at 0.06% APY. It requires opening a Schwab brokerage account, but that has no minimum balance and you don't need to use it. I've also seen recommendations for Capital One's 360 Checking Account, which offers similar no-fee terms. 

Step 2: Get a high-yield savings account (with no fees). 

As with checking accounts, one's savings accounts should also be fee-free. While interest rates for savings accounts will never be especially high, there's no reason not to maximize the interest one gets, especially when one makes the (very sensible) decision to keep an emergency fund with a few month's living expenses in savings. Many of the highest interest savings accounts available to the average USA-based customer are online-only. I use Ally, which I've been perfectly happy with (1.00% APY). The next most frequently recommended source of high-interest savings accounts is Barclays, which offers a 1.00% APY savings account as well as an up to 1.05% APY "Dream" Account that limits deposits to $1,000 a month and requires continuous deposits on an at least a monthly basis and no withdrawals (each for at least six continuous months) to reach 1.05% APY. 

Step 3: Make sure your retirement accounts are invested in low-fee investment products (likely with an emphasis on passively managed index funds if you, like me, are a cautious, relatively risk-averse investor). 

John Oliver explains the problem with high-fee investment products better than I ever could in this clip. Maximizing one's investment gains, especially for long-term investment goals like retirement, requires looking for the lowest-fee funds or products. Vanguard is typically a market leader when it comes to offering the lowest fees for many types of funds, though some companies, such as Fidelity may be competitive with them. Sadly, many company-sponsored retirement plans, such as the 401(k) at my previous firm, just aren't that great. Mine is okay, to be fair, offering a range of funds including a few Vanguard funds, but not the ones I wanted. There is, at least, a reasonably low-fee S&P 500 Index Fund in my 401(k) plan, which is what I'm invested in. 

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