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Charles Schwab's New 4.25% Free Checking Account


Charles Schwab Bank

Update 2/04/10: The yield has fallen to 0.60% APY. Refer to the bottom of the post for the rate history.

Charles Schwab introduced a free checking account today with a yield of 4.25% APY. It has no minimum balance requirements and no monthly fees. Other perks include free bill pay, free checks and ATM fee rebates. The account is under Charles Schwab Bank which is FDIC insured.

To open the checking account, you first have to open the Schwab One Brokerage Account followed by the linked Schwab Bank Investor Checking Account. The typical $1,000 minimum is waived for the brokerage account when you also open the Investor Checking account. Also, there is no fee to open and maintain the brokerage account. The accounts can be opened online, by phone or at a branch.

According to this San Francisco Chronicle article, Schwab branches won't accept deposits. You'll have to mail in checks, use direct deposit or transfer electonically. Their electronic funds transfer (ETF) system is called MoneyLink allows you to link to your external accounts and make online ACH transfers. MoneyLink has no fees and it allows you to link to multiple external accounts.

As this AP article mentions, the launch of this high yield checking account may be a counter-attack against the banks like Bank of America and Wells Fargo which have recently made inroads into the brokerage business. Last year, Bank of America introduced a program allowing 30 free trades a month for customers with at least $25k in bank deposits (see post), and Wells Fargo introduced a similar program in February (see post).

Since customers won't have the easy branch access with the Schwab Investor Checking Account, the online banks may have more to worry than the big brick-and-mortar banks. The 4.25% APY yield tops what ING Direct offers with its new Electric Orange Checking Account (unless you have over $50K), and with Schwab you have the advantages of paper checks and ATM fee rebates. Both HSBC and E-LOAN have mentioned plans for high yield checking. It'll be interesting to see what their rates will be.

With the mixing of bank accounts and brokerages, it's becoming confusing to understand what's covered under FDIC. Money held in this Investor Checking Account is under Charles Schwab Bank, N.A. which is FDIC insured (FDIC Certificate # 57450). However, money held in the brokerage account is under Charles Schwab & Co. which is a separate company from the bank. Brokerage products are not FDIC insured.

For other high yield checking account options, please refer to my best checking account summary post.

Rate History:
02/04/10: 0.60% APY
05/01/09: 0.75% APY
01/14/09: 1.00% APY
12/02/08: 1.50% APY
10/11/08: 2.20% APY
09/17/08: 3.00% APY
05/07/08: 2.01% APY
04/01/08: 2.26% APY
02/05/08: 3.01% APY
10/01/07: 4.00% APY
04/25/07: 4.25% APY

Related Pages: Charles Schwab Bank, checking account

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Comment #1 by Steve (anonymous) posted on
Do you know if the MoneyLine ACH system you are referring to is the same as Fidelity MoneyLine? I am not sure if Fidelity outsoruces that from another place.

Comment #2 by Mr. B (anonymous) posted on
Mr. B
Any idea if they do a hard pull?

Comment #3 by Steve (anonymous) posted on
Their billpay seems to be using CheckFree based on their billpay demo.

Comment #4 by Banking Guy (anonymous) posted on
Banking Guy
Sorry for the confusion. It should be MoneyLink and not MoneyLine. I've update the post with this correction.

About hard pull, the CSR didn't have a clue about this issue. We may have to depend on users' experiences for this.

Comment #5 by Anonymous posted on
MoneyLink is fast . . . very, very fast. It's the best ACH service I've ever used.

Comment #6 by Anonymous posted on
Has anyone also noticed that there is a discrepency in the minimum balance to open and min balance maintenance for the ScwabOne brokerage? According to the webpage, it says it's $1,000 and waived if you open both InvestorChecking and SchwabOne. However, when you go to the fees section, the Charles Scwab Pricing Guide (dated july2006), it says the balance in SchwabOne must be maintained at $2,500 or else be charged maintenance fee of $12.50/quarter. Has anyone seen any updated version that made this lowered?

Comment #7 by Craig (anonymous) posted on
There's an Equifax pull, not sure if it was hard or soft

Comment #8 by Anonymous posted on
About the apparent minimum balance discrepancy: The Schwab web site says that detailed info about fees is in the pricing guide, "including any amendments to the guide". The guide is dated July 2006. There's a press release (April 20, 2007) on the Schwab web site that announces the new minimums. So I guess press release is an "amendment" to the pricing guide.

Comment #9 by Gary (anonymous) posted on
Two things I wanted to contribute here:

1) The MoneyLink setup only links outside accounts to your SchwabOne (brokerage) account; the Investor Checking account in not linked directly. Instead, you then have to transfer the money from the SchwabOne account into the Investor Checking account.

2) After verifying trial deposits, you have to call up an automated number to set up your phone login info and then you can finalize the MoneyLink setup. After trying three times, I could not get it to complete MoneyLink setup. Once I asked to speak to an actual person, they were able to do it for me immediately.

Comment #10 by Tim (anonymous) posted on
How fast is the ACH system? Overnight/next business day. I've got HSBC and ING online savings accounts and they both take a few days. I'm not really getting why they can speed up the transfer times....debit is more or less instant (although it incurs fees for the vendor). More and more retailers seem to be scanning your check info in and transferring electronically on the spot. No real reason they can't have same day transfers between banks...maybe with $$ amount limits or frequency limits???

That would make for an AWESOME account!!

Comment #11 by Wes (anonymous) posted on
Is there any other checking account with such a high rate and atm refunds?

Based on what Gary said above, you can only transfer money into the brokerage account. Plus the brokerage account appears to be source for overdraft protection so it seems like you're going to have money tied up there a lot of the time. Does anyone know if this account has sweep and what kind of rate is it drawing?

Comment #12 by Gary (anonymous) posted on
You can only transfer money into the Schwab One account, however direct deposit, mailing in a check, or wiring will all allow you to put money directly into the checking account. As for sweep rates, see here
Finally, while the default for overdraft protection is the SchwabOne account, you have other options, or you can just not take the overdraft.

Comment #13 by Gary (anonymous) posted on
Just checked credit report. Looks like 2 Equifax hard pulls. One from the bank and one from the brokerage

Comment #14 by Alan (anonymous) posted on
Schwab's account is not insured.

I think a distinction should be drawn between FDIC insured accounts and brokerage money market accounts. Most brokerages have money market accounts with checking. I have two, both with higher rates than Schwab's.

Comment #15 by Gary (anonymous) posted on
The SchwabOne brokerage account is not FDIC insured, but the 4.25% checking account is FDIC insured.

Comment #16 by Anonymous posted on
Alan, brokerage accounts cannot be insured. These accounts fluctuate with the stock market.

Comment #17 by virgquest (anonymous) posted on
I called Schwab today and asked a few questions. I got through to a CSR almost immediately, no hold time.

The interest rate for cash sitting in the brokerage account is 1%, but you don't have to leave any money there. You can send direct deposits straight into the checking account and transfers between the checking and brokerage accounts are instant. Deposits cannot be made at ATMs. Interest compounds daily, paid monthly, pretty standard. No account closing fees.

The CSR I spoke to claims that the credit pulls are soft, not hard. This contradicts Gary's experience, so either the CSR is wrong or they aren't following their own rules.

CSR also says that ACH is free in and out and that there's no limit on the number of linked accounts.

My plan is to keep my longtime local account for easy deposits and my high-yield online savings accounts for higher interest rates and link everything to the Schwab checking.

I'm primarily concerned with earning immediate interest on my direct deposited paychecks and being able to quickly access the $$ when I need it. This account seems to have everything I need.

Comment #18 by Banking Guy (anonymous) posted on
Banking Guy
virgquest, thanks for the info. Seems like the CSRs are often not familiar with the credit pull issue.

Comment #19 by Gary (anonymous) posted on
Looks like there is another little issue people should be aware of. I used MoneyLink to transfer money into the SchwabOne account (as you cannot transfer directly into the Checking account). The transfer completed today, but when I went to transfer the money to the checking account it wouldn't let me. Upon further investigation I discovered the following: "A 3 business day hold is placed on funds coming in via Schwab brokerage MoneyLink® . You will earn interest and be able to trade most stocks and mutual funds as soon as the money is deposited. Until the hold time has elapsed, you may not withdraw the funds or use incoming MoneyLink® funds to trade securities requiring cleared funds up front, such as options or penny stocks."

Comment #20 by Anonymous posted on
I spoke with a Schwab account representative named Nick this morning. He told me that Schwab performs a hard credit pull before opening the account. They won't share what numbers they are looking for as far as credit score is concerned (for example, I was told that salem five wants at least a 750.)

Comment #21 by Anonymous posted on
it's 3.01 APY

Comment #22 by Anonymous posted on
Just spoke to two different CSR's and one said that there would be a hard pull for each account, brokerage, checking, and savings. The other said, there would be a hard pull for the brokerage and savings, and a soft for the checking. Either way be prepared for a pull of some sort.