When free checking turns into “fee” checking. Let’s check on the latest update on a popular bank account.
Remember Washington Mutual? This bank (more familiar to many by the name WaMu) has undergone quite a transformation. So much has happened to this institution that I thought to provide an update. If you’ll recall, this financial institution has been bailed out and purchased by JP Morgan Chase. In effect, it is now pretty much absorbed by Chase. So what does this mean?
We first began covering WaMu because they were one of those banks offering some fabulous rates for their free CHECKING account, which were easily smoking the rates of their competitors at the savings level. I wasn’t too surprised about this. Why? They wanted to attract customers in order to beef up their client base and make themselves look attractive for a buyout. Too obvious? Too conspiratorial? At any rate, the deal is done, and they’ve reinvented themselves a few times over since then.
There was a point when Bankrate.com’s figures showed WaMu’s rates for their free checking actually being equivalent to longer term (5 year) CD rates. They went through a series of rate hikes that told me that WaMu wanted to attract depositors to their fold by setting the bar and working to stay competitive in the marketplace. And of course, based on what’s happened since, I’ve wondered whether it was a good idea to pursue higher rates at banks that offer them, despite “exogenous factors”. After all, if you were a last-minute customer of WaMu, then you’d have borne the risk of having your money locked up in a bank that ended up going through an emergency acquisition.
Lessons From WaMu’s Story
Before you go shopping for a free checking account or savings account, keep this in mind. The lesson I take away from WaMu’s story is that chasing rates and chasing performance can be a fool’s enterprise… or can be quite risky. So if you’re contemplating free checking at an extremely attractive rate, you’ll want to do some heavy due diligence. With any financial offer you receive, it’s always wise to step back and look at the bigger picture. When you’re out shopping for an account, study its other features, the bank’s strength, and the state of the financial industry today. Of course, it goes without saying that we should always take note of the current financial climate as we make decisions about where to place our money.
One other thing to note: the financial industry is extremely dynamic. And now that WaMu Free Checking is gone and replaced by a Chase product, you’d like to know what could happen if you happen to be a WaMu checking account customer. The answer is that anything can happen. The products of financial institutions change all the time. So if we are to trace what’s happened to this particular WaMu product, here’s its short history: the WaMu free checking account turned into the Chase Free Extra Checking account. But that version did not last long as Chase has now decided to drop the “free” feature. Chase Free Extra Checking is now the Chase Total Checking account. The free version used to have no monthly fee and no minimum balance. But the new “fee” version will now charge you $12 a month unless you have a direct deposit set up, maintain a minimum balance or incur other charges. More here.
What do you think? I’d be interested to know how high you’d want rates to go before you override inertia and think of switching or putting money into a particular bank regardless of current financial circumstances. Are you a rate chaser? What do you think about changes that may happen for those accounts you already hold?
Created: September 24, 2008; Vastly Updated: May 14, 2011
Copyright © 2011 The Digerati Life. All Rights Reserved.
{ 15 comments… read them below or add one }
I bank at WAMU and it was a big bummer to see the rates decline so quickly many months ago when all those rate cuts were hitting us. Now, with WAMU doing really badly in the market, they are raising rates to attract more money to keep their books in check. I certainly hope it works because I like have a high yield once again. 🙂
Remember that your funds are purely liquid in a checking or savings account. So surely, this gives you a lot of flexibility with your money even with the stuff going on in the financial industry. There’s a lot to be said about tying your money up in a CD at these rates when you can get it here with with easy access and redemption privileges — just as long as you keep within FDIC guidelines!
Which makes me ask the question — if these online banks offer such high yields, why even bother with the average short term CD? Goes to show we all need to shop around for the best returns.
The other side of the story of course, is the whole issue of WaMu’s health. They are offering the excellent rate for a good reason.
With the current financial climate I’m willing to be risky with stocks, but NOT with my checking and savings account.
I’ll wait a week or two and see if WaMu is “savable” – then I’ll consider switching. It feels like they’re piling it on so they have more liquid cash, so if they aren’t extended the credit they desire they can cover those overnight overages. Smart plan, but one I wouldn’t like to be part of.
With all things equal (aka not this week in the American economy) I have no problem spending twenty minutes to switch checking/savings accounts. Even if it was for an extra .5%
Very good points Jenny. It’s definitely prudent to see how the dust settles over the next few weeks. With the whole bailout plan unfolding from Pres. Bush’s lips today, I hope that the murkiness in our nation’s financial picture soon dissipates and we’ll move from “uncertain” to something more clearcut, whatever plans the “powers that be” decide to undertake.
There are other issues to consider here, of course, including what came out today: the downgrading of WaMu ratings.
Well, let’s see how this unfolds.
For a while, they had a pretty good rate, but I’d be kind of hesitant to put my money with a troubled bank, even if it’s a rumor. It’s probably worth checking into local solutions as well. For a while, my credit union was actually offering 5.0% APY on checking account balances up to $50,000 if you met certain (easy) requirements.
Cheers,
Ken
I agree, those were some great rates we had in the past. Now if others can share their high rate sources, we would very much appreciate it!
Good post but that is definitely a tough question. Has anyone gone through the process of getting money out of a bank through the FDIC if the bank goes under? If that is an easy task, then I would have no problem about putting money there. I am with a risky bank now with Country Wide (Although hopefully their time has passed).
4.0% is a fantastic rate and better than the current 3% of my ING account. WAMU is covered by FDIC as well so the savings account should be secure. I don’t know if I would move both my savings and checking account over at this time, but it does look appealing. Thanks for the info.
The key is to keep it under FDIC limits. That way the only risk you’re opening yourself up to is if the bank fails you miss out on interest for a few days. As soon as I don’t have to worry about hard credit checks effecting my credit score I will be opening a WAMU checking and savings account, if it’s still standing.
Our dear WaMu,
why oh why did you do this to us? Okay some disappointment aside, I guess it’s best that you got bought out by your friend with the deeper pockets, J.P. Morgan.
At least your depositors will still have access to their funds in your care. In my mind we can probably consider your buyout as a “best case scenario” for a bank in your straits. So it’s a consolation that somebody was around to catch your fall. But still, I find it ironic how you’d advertise a rate increase on the week you decide to “fold” as an independent bank.
It may not matter as things will carry on as usual — except under a different name (that of the acquirer’s, J.P. Morgan) — although I expect that what customers and employees will experience from WaMu is the standard situation you’d see at an establishment that is undergoing transition and changes within its walls.
Until they get their act squared away, things can be “bureaucratically” slow. Or, we may be pleasantly surprised and things go smoothly…. we shall see.
But yeah, the good news is that depositors still get their money and are probably going to keep earning your stated rate. Correct me if I’m wrong…..anyone?
This is something we haven’t seen in a while, but I bet we will be seeing a lot more of in the near future. I’ve heard it called “death-spiral financing,” and its a process where a bank becomes so desperate for capital that it begins to offer higher and higher return rates that it ultimately can’t afford.
The more a bank needs the money – the more it costs.
The government can try to step in and make money cheaper, but this has the unintended consequences of driving up prices on food and energy and pushing more consumers to the brink of debt-default…
Of course, when the credit cards and mortgages default, the banks need more money.
Its a pretty vicious cycle with no clear end in sight. Even the big bailout could backfire in half a dozen ways.
It is funny how times change. I was looking on Google for the best savings accounts rates and I stumbled upon your article. I wish I could find rates like this again.
I think there is always a catch to what the banks are offering. They would always say free but when you already have the check book and the terms, you’ll see the hidden charges. Everyone should ask all the details and read all the terms before signing anything. Unless you want to be shocked with the charges you’re going to get.
I think a lot of people don’t realize that bank products change their terms and features quite a bit. This happens a lot with credit card products, for example. If you read their T & C, you will notice that banks will give themselves an “out” by saying that their offers or terms may change at any time, so consumers will need to keep their eye on bouncing rates if they happen to live on the edge and count those rates when they budget or spend and incorporate these figures into their accounts.
I’ve been with Bank of America for over 10 years and get free checking with direct deposit. It works for me since I just have my paycheck deposited automatically. Saves a trip to the bank too.