Reader Question: Where Should I Keep My Spending Money?

Last week, I got a Facebook message from my friend Julie. She’s looking for a place to put her “fluff money” — the bank account she uses for small purchases and eating out. Julie wrote:

Hey, financial adviser to the stars! If you had a fluff money account that averages around $1K per month, where would you put it? My personal fluff money account has been happily residing at Simple since 2012. Simple is now BBVA Compass, and I hate Compass bank and swore they’d never have any of my money ever again.

Julie and her husband already have a joint checking account at Bank of America, plus a business account at Chase. And they have plenty of savings and investments at Vanguard and Capital One 360. But she wants to know where to keep her spending account (as opposed to her saving account). She was a big fan of Simple for a few basic reasons: It had high usability, no fees, and a handy smartphone app. But she’s not sure where to put her money now.

I like Julie’s question for a couple of reasons.

• First, it highlights how different people handle money. I know some folks use one bank account for everything. (Or, often, two accounts: a checking account and a savings account.) On the other hand, there are plenty of folks with multiple bank accounts. Tai and Talaat have thirteen bank accounts — and that works for them.
• Second, Julie is making money moves based on her values. That’s a good thing. I feel like too many people just accept defaults. They don’t really choose how they use their money; they simply take whatever happens to come along. Julie’s not willing to do that.
• Finally, Julie is making room in her life for spending. Too often in the world of personal finance, we focus on frugality and cutting back. Thrift is great, but there’s also a place for mindful spending too. Julie has a budget for “fluff”, which is awesome.

I’m not a maximizer when it comes to financial institutions. I could spend a lot of time tracking down the perfect bank and the perfect credit card — and I know a lot of Money Boss readers do this sort of thing — but I’m happy to find one that’s good enough and stick with it.

Here’s how my accounts are structured:

• The bulk of my savings actually sits in Fidelity investment accounts. If it’s money I don’t need in the near future, I invest it.
• I have a small (roughly $5000) emergency fund in an online high-yield savings account. (Haha! That’s what we called them a decade ago, back when they actually offered high interest rates. Nowadays you’re lucky if you can find anything above one percent.) At the moment, this account resides with Capital One 360 (formerly ING Direct).
• I have a couple of other dormant accounts at Capital One 360 that I use for specialized saving. When Kim and I were building funds for our cross-country RV trip, for instance, we pooled the money there.
• Lastly, I have my day-to-day checking account. Like Julie’s “fluff money”, this is my spending account. This lives at a local credit union.

I’m a vocal advocate of credit unions and small local banks, and that’s where I think Julie should move her money.

Unlike banks, credit unions are not-for-profit institutions. This means they can generally offer better interest rates and lower fees than traditional banks. According to the National Credit Union Association — which is probably biased, I know — credit unions offer better rates on nearly ever product, from credit cards to car loans to mortgages to savings accounts.

Another difference is that credit unions are member-owned. If you open an account, you’re one of the owners. Members elect the board of directors, which sets interest rates and makes other important decisions.

I also like that credit unions typically have strong ties to the communities they serve. They also tend to cooperate with each other instead of compete. In fact, most provide “shared branching“, which means that if you bank at a credit union in Delaware, you may be able to make deposits, withdrawals, and loan payments at an unrelated credit union in Montana. It’s as if they’re all members of one gigantic banking network.

Note: Some people assume credit unions and local banks offer a less-polished experience than larger organizations. From my experience, that’s not the case. When I switched to a local, four-branch credit union, I found it had better online features than the huge national bank I’d been using for years!

When I told Julie she should move her “fluff account” to a credit union, she asked if I could recommend one. (We live in the same city.) “There must be some sort of online tool that lists local banks and credit unions,” I told Julie. “Hold tight.”

Sure enough. A quick Google search revealed this bank locator from a site called WalletHub. I don’t know anything about WalletHub, but this tool looks cool. You tell it type of institution you want — large bank, medium bank, community bank, and/or credit union — then note which services you need. You can even enter a zip code so that it lists only banks in your area!

So, that’s where I would keep my spending account. But maybe there are better options? (Or other options, at least?) What do you think? What bank do you use for your day-to-day spending account? Do you recommend it? Why or why not? If you were to switch, where would you move your money? Do you have any other advice for Julie? Let us know in the comments!

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