Four happy alternatives to bank checking accounts
By Vanessa O'Connell

(MONEY Magazine) – If you're like most people, you probably find your bank checking account convenient for paying bills and tracking spending. But even those accounts that pay interest are no place to stash excess cash. Although most savings returns have risen over the past eight months, yields on the average interest- paying checking account have fallen to a laughable 1.46%. These days, you can easily double -- or even triple! -- that return on your cash. So why on earth do we put up with such insults? "Banks realize that it's a hassle to close or move a checking account," says Gail Liberman, editor at Bank Rate Monitor newsletter. "They can lower the rates that they pay without losing a lot of customers." Moreover, virtually all banks require customers to maintain minimum balances, usually at least $1,000. Otherwise, banks pay no interest whatsoever and charge customers a monthly fee of $5 to $8 plus around 25 cents per check. If your balance drops below the bank's minimum during one month, you pay fees of approximately $10 and forfeit the month's interest. Subtract those costs from the $40 in interest you would earn if you maintained a $3,000 balance for the remainder of the year, and you pocket a pitiful $30. So what should you do? Ditch your bank for a checking account at a credit union or an account at a brokerage firm with check-writing privileges. Many of them offer free checking when you maintain a balance of $1,000 or more. You might consider combining such an account with a money fund, which usually has a check-withdrawal minimum of $100 or more but pays a higher yield. Here are some of the best bank alternatives: Money-market funds. The average taxable money fund today pays 4.11%. Although most require you to keep a $5,000 minimum balance or allow you to withdraw no less than $250 per check, there are some that come with very few restrictions. For example, United Services Treasury Cash Fund (recent yield: 3.45%; 800-873-8637) lets you write an unlimited number of checks for any amount as long as your balance remains at least $1,000. Oppenheimer (top- yielding taxable money fund: 4.1%; 800-525-7048) has a check minimum of $100 and requires no minimum balance. A few fund companies even provide checks at no cost, something banks seldom do. Among the funds that don't charge for checks: Fortis (recent yield: 3.75%; $500 minimum balance; minimum withdrawal: $100; 800-800-2638), Stein Roe (top taxable fund: 3.99%; $1,000 minimum balance; $50; 800-338-2550), and Benham (top taxable fund: 4.88%; $1,000 minimum balance; $100; 800-472-3389). Credit union share draft accounts. Credit union checking accounts, sometimes called share draft accounts, are just like their bank counterparts, but they usually pay more interest and charge you lower fees, if any at all. The average credit union account yields 2.26%, about 55% more than bank accounts. Even better, most credit unions offer free checking with interest regardless of your balance, compared with less than 2% of banks. And the average credit union's checking fees are about half those of the typical bank, according to the Credit Union National Association. The North Carolina State Employees' Credit Union, for example, pays 3% interest and lets you write as many as 50 checks a month for a mere $1 fee. Of course, you can't establish an account at just any credit union; The North Carolina State credit union is open only to state employees and teachers in North Carolina. However, credit union membership is expanding by 2 million people a year, and it's becoming easier than ever to find a credit union that will accept you. One place to look: your alumni association . Brokerage firm cash management accounts. If you own stocks or bonds and make at least a couple of trades each year, you might consider a cash management account at a brokerage firm, also known as an asset management account. This is basically a money fund, brokerage account and checking account, all rolled into one. Most brokerage firms require you to keep at least $10,000 in cash or securities in such an account, and they charge an annual fee of anywhere from $75 to $125. An even better deal: dscount broker Charles Schwab's Schwab One Account (800-421-4488), which lets you write an unlimited number of checks of any amount from a taxable interest-bearing savings account (recent yield: 3.7%) or a tax-free money fund (yield: 2.42%). To avoid paying Schwab One's $5 monthly fee, you need to either make two trades a year or keep at least $5,000 in the account, in any combination of cash, stocks or bonds. Accounts for GM and GE shareholders. If you own as little as one share of General Motors (recent price: $52 a share), or any of its subsidiaries, such as Electric Data Systems ($36) or Hughes Electronics ($31.25), you can write an unlimited number of free checks from GMAC's Demand Note account (recent yield: 4.85%; 800-255-4622). This no-fee account is open only to GM employees and shareholders and has a rate that changes weekly, but the yield is always at least 0.25 percentage points higher than the rate paid by 91-day Treasury bills. General Electric (recent price: $50.25) offers its shareholders a similar fee-free account, the GE Capital Interest Plus account (recent yield: 4.44%; minimum initial investment, $500; 800-433-4480). One drawback, however: Both accounts limit your check withdrawals to $250 or more.