Who really needs a checking account?
Maybe you don't if you're fed up with over-the-top banking fees, don't care about federal deposit insurance and are comfortable banking by mail.
Here's an alternative.
There's a new generation of money market mutual funds that are going head to head with bank checking accounts, according to IBC's Money Fund Report, a newsletter that tracks the money fund industry.
"Excessive bank fees have made traditional checking accounts vulnerable," says Peter Crane, managing editor of the newsletter.
Money funds are mutual funds that invest in short-term IOUs, such as Treasury bills, bank certificates of deposit and short-term corporate bonds. They offer higher rates than most bank accounts--the current average yield on these funds tops 5%.
They offer stability: Money market funds are not insured but are managed to keep a stable unit price so that investors never lose principal.
They also offer liquidity; you can tap the money in a money market mutual fund by writing a check, though most funds have minimum amounts that make them impractical for everyday check writing.
The latest wave of enhancements goes even further. IBC reports that 82 money market funds offer unlimited check writing with no minimum amounts. Some also offer cards for automated teller machines or debit cards linked to the accounts.
Investors and savers willing to bank by mail can establish one of these accounts, earn top interest on their account balances, write checks on them all month and avoid most of the annoying monthly fees their banks are trying to charge.
What are the drawbacks to using a money fund as a bank account substitute? You can't walk to the branch around the corner and deposit your paycheck. You can't sleep tight with the security offered by the Federal Deposit Insurance Corp., with which the government supports private banking. You may not get your canceled checks back every month (though you may). And, if you're determined to use your ATM card on a regular basis, you may find yourself paying $1 here and $2 there to the local bank that's putting the ATM out there for your convenience.
You might decide those disadvantages are worth the effort, especially because most brokerage and mutual fund companies are now rolling out superior money market funds. Some of these are called cash management accounts.
To find one that suits you, shop around. Don't be confused by the money market deposit accounts at your bank, which are not the same as money market mutual funds and probably have lesser yields. Check the companies you already deal with to see whether any of them offer a true money fund with the checking privileges you need. If not, you can try one of these, suggests Connie Bugbee, editor of the IBC report:
* U.S. Global Investors Treasury Securities Cash Fund, which has unlimited checking and high yields, but no ATM card; (800) 873-8637.
* E-Fund, in Portsmouth, N.H., with high yields, unlimited checking, a MasterCard debit card and a $35 annual fee.
* American Express' Strategist Money Market Fund, another yield leader that has unlimited checking but charges $2 for every check under $100; (800) 297-7378.
In the meantime, ordinary-check writers should watch that space, and bankers should really watch carefully. Companies are refining their products every day, and if they keep getting better and better, there may come a day when many bank loyalists will give up their accounts.