Charles Schwab's New 4.25% Free Checking Account
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
About hard pull, the CSR didn't have a clue about this issue. We may have to depend on users' experiences for this.
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.
That would make for an AWESOME account!!
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?
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.
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.
The SchwabOne brokerage account is not FDIC insured, but the 4.25% checking account is FDIC insured.
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.