Broken  Piggy bank © Corbis


Checking is the new savings, according to a WalletHub report earlier this year, which found interest-bearing checking accounts pay as much as five times more interest on balances up to $50,000 than savings and money market accounts.

But that only scratches the surface of the changes undergone by the banking industry in recent years, according to the report's findings. While certificates of deposit are still best for long-term saving, their interest advantage over online checking accounts isn’t as substantial as you might think. For example, locking away $10,000 in a five-year CD will only get you 0.98 percent, on average, compared to 0.53 percent from the average online checking account.

A clear hierarchy has also emerged within the checking account market. The average online checking account charges less per month than the average full-service checking account ($4.34 vs. $5.07) and offers 119 percent more interest (0.54 percent APY vs. 0.25 percent APY). What’s more, 39 percent of online checking accounts are interest bearing, compared to just 11 percent of traditional checking accounts.

What we have, as a result, is a new age of banking where online checking accounts are at the top of the food chain. Consumers who are unhappy with their cash-based interest earnings should therefore consider moving their reserves into a new online checking account, especially if they are reticent to invest in the stock market. We all need to make our money work for us, after all, and traditional long-term savings vehicles aren’t cutting it in the current environment.

But you also have to wonder:  What caused this shift in everyday banking dynamics, and is this the new normal or just a temporary trend?

There are a number of likely contributing factors, including:

Low Fed rates

You can’t expect much from long-term savings products when the Federal Reserve is keeping rates at near-zero levels. They’re doing that to help promote borrowing and stimulate the economy through increased spending.

Money crunch

You can’t ignore the fact that people simply might not have enough money to be saving in any substantial fashion. The average household has $6,700 in credit card debt, 30 percent of Americans say they don’t pay their bills on time and insufficient savings tops the average person’s list of financial concerns, according to studies from CardHub and the National Foundation for Credit Counseling.

So it might just be that people simply have more demand for everyday banking tools like checking accounts than they do for savings-related products at this point in time.

Technological advances

It’s cheaper for banks to have a website and a call center than it is to invest in physical branches and the people to staff them. For example, William Demchak, president and CEO of PNC Financial Services Group, told investors last year that the bank saves $3.88 every time a customer deposits a check via smartphone rather than doing so at a bank branch.

Now that Internet usage has become ubiquitous and people are used to doing many things online, financial institutions have the ability to close down some of their local shops. That at least explains the attractiveness of online checking accounts.

Regulations

Bank oversight has increased significantly in the wake of the Great Recession, with the 2009 Credit Card Accountability Responsibility and Disclosure Act, the Dodd-Frank Act and the establishment of the Consumer Financial Protection Bureau making compliance more difficult and costly. So, it could be that banks are pushing checking accounts as a do-it-all-option for consumers in order to eliminate some of the overhead that comes with providing multiple accounts that serve similar purposes to a single customer.

Who knows what the banking landscape will look like five years from now? Sure, we can expect increased chip card availability, mobile wallet adoption and more prevalent use of online payment tools like PayPal. But judging from the changes witnessed in the last five years, we’re in for a lot more than just that.

If there is one thing we should all remember, it’s that labels and past performance don’t always accurately predict future outcomes in the banking world.

Odysseas Papadimitriou is CEO of the personal finance websites CardHub and WalletHub. He previously was a senior director at Capital One.

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