Earlier this year I wrote about how to stop living paycheck to paycheck with passive income streams and the importance of having your family assets diversified in more than one bank. Well I happy to report back that I'm actively taking my own advice. About a month ago we opened up a second bank account to start distributing our family's income. A certain portion is direct deposited to one account used to automatically pay fixed expenses (mortgage, utilities, garbage, tithing, internet, phone, etc). Then in the other account we direct deposit what is left over into our new checking account. Graphically, here is how our money flow looks:
With this new model it's important to choose a bank account that will satisfy your family needs. It also helps us quantify how much our reoccurring bills are costing our family. So how did we start?We started by first defining the requirements.
- Define purpose – A seperate account to receive bi-weekly direct deposits, earn interest, and zero ATM fees.
- Do you want a brick and mortar bank?
- Do you need the account for business or personal?
- How quickly do you need access to your money?
- Shop around – a great place to start shopping around is by asking your friends. “Where do you bank, and why?” Next search the web for the criteria you defined in step 1. Organize your bank options based on your friends recommendations and search results.
- FDIC insured – make sure that the bank you are moving you money into or direct deposit into is insured by the Federal Deposit Insurance Corporation (FDIC).
- Account Options – look at all the options that are out there. Do you want a savings account, money market, or checking account?
- Money Market – are looking for a higher interest account, but typically has less options for direct withdrawl. A lot of banks are offering around .6 to 1% interest currently with no minimums.
- Interest Earning Checking Account – for my family we found a lot of great options on interest earning checking accounts. For example, if you meet certain requirements like direct deposit, paperless statements, minimum transactions, or review online account status atleast once per month. There are a lot of banks that are offering 3% + checking accounts if these minimums are met.
- Quantify Fees – do everything you can to avoid fees. The important thing here is to find a bank that will have low or no fees and minimum requirements.
- Overdraft Protection – check out the banks overdraft protection. A nice option to have is a checking account that will protect overdrafts with automatic withdrawls from your savings account. A lot of banks offer this free of charge, so check it out.
- No Monthly Fees – check to see if there are any hidden bank fees if certain minimums are met or if there are
- Make a decision – it's times too weigh all the options. Layout all your options on an excel spreadsheet and look at what accounts satisfy your requirements. Choosing the best option is always easier when you have all the criteria laid out visually for you to review.
As a personal reference, my family and I chose an interest baring checking account that had zero fees, covers foreign bank ATM fees, and earns 3% + if we meet their minimum requirements. For us it allowed the lowest cost flexibility to receive our direct deposits, and will help us move into the third stage of passive income. The stage where we'll be able to create passive income streams that feed our reoccurring bills, and that will alleviate the burden on our primary income.
These are just a few steps I took to choose a bank account for my family and I. What do you look for when choosing a new bank account?