[this is a ymoyl update.]

can’t help passing this along:

i’ve been a happy customer of virtualbank for two years. they now have a refer-a-friend program. if i refer you and you open a money market account with them with a minimum deposit of $100, we each get $20. it’s a free (no fees) account which earns a good rate (currently 3.55% apy), but even if you decide to close it in a couple of months, it’s hard to beat a 20% instant return on a $100 investment! if you’re interested, send me your email address, and i’ll send you a referral.

while i’m on the topic, here are some more general thoughts on online banks and how i use them:

i’ve been using online banks for a few years, and they’ve been a great place to store cash. i keep my (no charge) checking account at my local bank because my paychecks go there by direct deposit and all of my bills are withdrawn from it, and i like having a physical place i can go and talk to someone if there’s a problem with my day-to-day transactions. but for cash i don’t need immediately, online banks provide much better rates of return, since they don’t have the overhead of brick-and-mortar ones.

i’ve found two online banks to be especially useful:

virtualbank

their money market account rate is very competitive, though not quite as high as ufb’s (currently 3.55% apy vs. 3.8%), but their website is much better, and it’s much easier to transfer money in and out of a linked checking account at another bank. just tell the them the total you want transferred, which way you want it transferred, and on which date you want it transferred, and you’re done.

this makes them my choice for money i want to move in and out of the checking account at my local bank. for example, i sold my car, had a payout from my company’s espp, and had a couple of cds mature this fall, leaving me with a stack of cash i wanted to move into my account at vanguard. i wanted to invest it gradually over the course of many months, and there’s no reason to have it sitting in my checking account for all that time. i transferred it to virtualbank, where it all sits and earns $10-$15/month until i make small withdrawals every few weeks to cover the weekly vanguard investments.

ufb

ufb is much harder to use. their site is pretty atrocious and buggy (bad javascript). to put money in, i have to send them a check drawn on my local account. to get money out, i have to transfer it from my ufb money market to my ufb checking account, then write myself a check to deposit locally.

but, in addition to consistently having the best interest rate i can find, they have two great features:

1. they provide postage-paid envelopes for submitting check deposits, which makes banking a breeze. when i get paid by check for something, i just write “pay to union federal bank for deposit only”, sign it and add my account number, stick it and a deposit slip in an envelope, and walk it to the mailbox.
2. they provide an atm card which reimburses charges applied by other banks (up to $4.50/month), so you get free cash withdrawals at any atm. i generally use this to get cash, so i don’t have to worry about taking too much from the local account used to pay bills. i take out enough to last for several weeks, and i don’t have to worry about atm fees or other penalties (money market accounts allow six withdrawals each month without penalty).

this combination has worked well for me. i have:

• a local checking account for automatically receiving my paychecks and paying bills,
• virtualbank to hold money i’ll need in checking, but not for a few weeks or months,
• and ufb to provide a trivial way to deposit other checks i receive and to get cash from anywhere without atm charges (something i can only do at my local bank’s atms with their card).

for anyone wondering, i do have an account at the hugely over-promoted ing (they have a sign on every corner in baltimore these days). i joined them a year and half ago when they offered $25 for signing up. that was great, but i recently withdrew the small amount of money i was keeping there, just so i wouldn’t have to bother keeping track of it. their website is fairly painful, they have a bad habit of regularly sending email to remind you how wonderful they think they are, and their interest rate is always a little under virtualbank’s. there’s nothing terribly wrong with them, but no compelling reason to use them.

as a final word, in case you didn’t know, bankrate is the place to go to get the latest facts and figures on bank accounts and cds (when i was looking last spring, bofi and netbank were coming out on top of the latter category).

happy saving!