Now that my wife is working again and I am building a solid financial base after paying my last tuition bill in January, I have started looking into interest checking accounts. I immediately discounted the local brick and mortar banks that offered a lowly 0.5% - 1% interest checking account with ridiculous account minimums.

Instead I looked at options online, from more common options such as ING which offers 3% interest checking, to lesser known options such as SalemFiveDirect, which offers 5% (on accounts up to $10,000).

I don’t ask much from a checking account, so my current local bank (Citizens Bank) satisfies my needs: Fee-free ATM access, free online banking and bill pay, no account fees, and Quicken downloads. The only advantage I see to an online account is the interest rate. The disadvantages?

• Paper checks are a hassle. Yesterday I gave someone a check to join a softball league. This type of transaction, while somewhat rare, would be much of a pain without paper checks.
• ATM fees. Apparently, there are ways around this – some accounts give you a “credit” each month to help avoid fees. But there still doesn’t seem to be a way to get around the fee most of the actual machines charge, even if the online bank itself doesn’t charge.
• Deposits. I usually get one or two checks per month from random sources that I need to deposit, not including my paycheck which is done via direct deposit. Having to put these checks in an envelope and mail them to the bank is yet another hassle I would have to deal with.

None of these disadvantages by themselves are a dealbreaker, but they definitely add up to a fair amount of annoyances. The question is, would the interest I gain on my checking account be worth it?

Let’s assume that I sign up for a 5% interest checking account. I always try to maintain a $1000 minimum in my checking account, though to be fair it probably averages more around $2000. It is fairly simple to see then that over the year, I would get about $100 in interest.

It’s very tempting; however I still am not convinced. First of all, the 5% I quoted was from SalemFiveDirect, which I had never heard of, so I would be a bit hesitant to open an account up there without more research. Secondly, while I have no problem putting savings (even emergency savings) in an online account, having my checking account money which I use on a daily basis be stored at an online bank would make me slightly uneasy.

Lastly, if I gained interest on money in my checking account, I might be slightly less inclined to move it over to savings. While the difference in interest might not be huge, the fact that I spend money in checking more easily than money in savings could mean that overall I would end up saving less money. That may be the most important factor in this decision.

If anyone has any feedback or experiences with moving over to an online checking account, please feel free to share!