Continuing the discussion on blind investing, here's a paperwork
reduction solution that simplifies one's financial life.

Kelly


    Kiplinger's Personal Finance Magazine

July 2003


Banking Made Easy

by Brian Knestout & Courtney McGrath

    Two can't always live as cheaply as one, it turns out, when those
two are a bank account and a brokerage account. By combining these
services under one roof in what we call bankerage accounts, a handful of
big financial institutions offer the chance not only for you to save
money but also to enjoy a kind of flexibility and convenience that's
impossible to achieve with scattered accounts.

    Just ask Michael Cohen. Earlier this year the retired optometrist
from Walnut Creek, Cal., reaped the rewards of a decision made two years
ago to combine accounts with Charles Schwab. (Prior to the move, Cohen
had done his banking at E*Trade and his local Washington Mutual branch,
and had as many as 11 different online brokerage accounts.) He had
negotiated to buy a brand-new silver-blue Volkswagen Passat GLS and
wanted to pay the $30,000 bill with a check from his Schwab account.
There was a hitch: The great deal expired at the end of the day and his
checking account couldn't cover the price. But he wrote the check
anyway, drove home in his new car, got online, and transferred funds
from the money-market arm of his Schwab account into his checking
account. He figures that avoiding a couple of days of check-clearing
hassle sealed the deal.

    Much improved

    Simple, flexible and economical -- those should be the hallmarks of
combined accounts that can handle everything from savings and checking
accounts to stock, bond and mutual fund investments. When we last
surveyed bankerage accounts (in June 2000), we found few products worth
praising; most seemed more like gimmicks than godsends.

    Since then, many firms have stepped up their games. In our latest
survey, we found that fees and commissions have generally declined. Many
brokers give customers a break on securities commissions or account fees
as a reward for having large account balances. At Fidelity, for
instance, your commission on Internet stock trades drops from $33 to $15
if the combined balances in your household total $100,000 or more.
E*Trade drops its quarterly maintenance fee if your account balance is
above $5,000. Some firms reimburse fees incurred for using
out-of-network ATMs.

    Consumers generally love the idea of consolidating accounts, but
they're hung up on some misperceptions. Says Dennis Ceru, director of
retail brokerage and investing analysis at the TowerGroup consulting
firm: "People still don't want to put all their eggs in one basket. Most
figure that banks are safer and that brokers will give you a better
return, so they have both." As for firms that try to do both, "most
don't measure up" to consumer expectations, says Ceru. "They're less
fully featured and less accessible than traditional banking accounts."

    But Ceru says that the combination accounts have come a long way
since they were first introduced, and our survey confirms his
assessment. Many accounts do offer federal insurance on checking and
savings accounts. And with the improvements firms have made, all the
bankerages in our survey offer services good enough to make
consolidating your accounts worthwhile -- assuming you have enough
assets to meet thresholds that will cut fees. Each has strong and weak
points, however, and some will be a better fit than others for your
particular needs.

    We examined 11 of the largest banks and brokerages that offer
combined accounts, and we priced products and services for a customer
with $25,000 each in brokerage and banking assets ($50,000 total).

    And the winners are ...

    Fidelity and TD Waterhouse share top honors for overall performance.
Fidelity provides a clear list of accounts, flexible transfer options, a
large amount of investment research and cost-basis information for a
reasonable price. TD Waterhouse could make it easier for clients to
navigate between its banking and brokerage operations, but copious
research and free bill-paying services boost its final score. The first
runner-up, Citibank, delivers good bang for the buck, offering an
above-average amount of research and higher-than-average interest rates,
and charging low commissions and fees.

    Seamless sites

    The standout for simplicity and flexibility, Merrill Lynch Direct,
blends banking and brokering best. Online account information is
presented clearly, and customers are given several options for sorting
transactions, such as ATM withdrawals and bill payments.

    Quick & Reilly, a division of Boston-based Fleet Bank, also gets
high marks for clarity. Using your ATM card number and password, you can
access all of your in-house accounts from a single screen. Bill
payments, account transfers and investing options are clearly displayed
and operate smoothly.

    Several others, including Fidelity and Wells Fargo, also offer good
access to both bank and brokerage services from a single launching
point. Each has its flaws, however: Fidelity doesn't offer FDIC-insured
accounts, and the brokerage system at Wells Fargo is a bit clunky.

    Best for commissions

    To figure out which outfit offers the best deal on trading
securities, we averaged the cost of three trades at each firm -- one for
100 shares of stock, one for 1,000 shares and one for 5,000 shares.
NetBank, which charges $11 per trade regardless of the number of shares
bought or sold, won handily.

    If you place big trades, you'll pay a bundle at Charles Schwab and
Merrill Lynch. Both firms charge $29.95 per trade and a 3-cent-per-share
surcharge on shares beyond the first 1,000. The three trades we priced
at Merrill and Schwab averaged $69.95.

    Most of the brokers offer no-load, no-transaction fee (NTF) programs
for mutual fund investors. We looked at the cost of buying $10,000 worth
of no-load funds not in an NTF program. E*Trade, which charges $24.95
per trade for funds not in its 840-fund NTF program, comes out on top.
But venture out of Fidelity's 1,257-fund program and you'll pay $75 per
trade. All of Wells Fargo and Merrill Lynch's funds are in their NTF
programs -- Wells Fargo offers about 2,000 no-loads; Merrill, just 740.

    Best for brokerage fees

    Cheap commissions seem less appealing when your broker
nickel-and-dimes you with nuisance fees. We tallied each firm's yearly
account fees, inactivity fees and charges for postage and handling,
hard-copy statements, stock-certificate delivery, account closure,
account transfers to another broker, and wire transfers -- assuming the
customer has $25,000 in brokerage assets.

    Bank of America fares worst, with fees totaling $227.50, including a
$100 yearly maintenance fee. You can avoid the fee if you make at least
six trades in the 12 months preceding the fee date. Schwab waives its
account fees entirely for those who have over $50,000 with the firm.
Those with smaller accounts can pay as much as $240 per year. Fidelity
spares its customers -- at least those whose combined household assets
equal $30,000 -- most fees. In addition to waiving account fees,
Fidelity does not charge for postage and handling, printed statements,
account closures, and account transfers to other brokers.

    Best for banking fees

    Fidelity does well here, too, charging customers with $30,000 in
combined assets nothing for checking privileges, direct deposits, or
even stopped or bounced checks. If you want check images added to
monthly statements, though, you'll pay about $24 per year.

    Canceled checks are free at Quick & Reilly, but you'll pay $15 to
stop a check and $12 if you bounce one. By contrast, Bank of America
charges between $10 and $14 per month in account-maintenance fees. At
Schwab you'll pay $10 per month for checking privileges unless you have
at least $100,000 with the firm. Fidelity, incidentally, doesn't offer
an FDIC-insured checking account.

    Best of the rest

    While costs and convenience may be the bottom line, you shouldn't
ignore these other features:

    Research. Given what we know now about brokerage stock research, you
might want to take this category with a grain of salt. Still, some
analysts do good work. Among the 11 firms we followed, the leader was
Merrill Lynch. It offers its own research and unlimited Standard &
Poor's reports. NetBank brings up the rear, offering only some news and
streaming quotes, both of which can be found any number of places free.

    Sweeps. All surveyed firms permit sweeps of brokerage cash balances
to interest-bearing accounts. Most perform the sweep automatically,
either daily or as each trade closes. However, available yields can vary
widely. NetBank dusts the competition here, sweeping its customers'
excess cash into relatively high-yielding (1.51%) checking accounts. TD
Waterhouse (0.65%), Citibank (0.64%) and Bank of America (0.62%) pay
less than half that amount, and at Schwab and Merrill Lynch, your excess
cash will earn just 0.10%.

    Cost-basis information. Figuring out the cost basis of securities
bought years ago can be a hassle come tax time -- especially if you've
sold mutual funds. Four firms -- Fidelity, Merrill, Schwab and TD
Waterhouse -- provide documents containing all the information needed to
complete a Schedule D. Citibank does, too, but only online. E*Trade and
NetBank provide no cost-basis information at all.

    Bill payment. All the brokers in our survey offer bill-payment
services, and many do it for free. E*Trade, Fidelity, Merrill Lynch and
Schwab charge $6.95 to $7.50 per month. Customers with at least $25,000
in assets get free bill payment at Quick & Reilly; others pay $4.50 per
month. Wells Fargo customers with a combined balance of $5,000 get bill
payment free; others pay $6.95 per month. Fidelity waives its fee for
those with $100,000 in combined assets.

    CD yields. We asked the firms for current yields on six-month,
one-year and five-year CDs. NetBank wins across the board with a
six-month CD yielding 1.83%, a one-year at 2.26%, and a five-year at
3.83%. E*Trade takes second place in all three categories. American
Express and Citibank offer the lowest-yielding products.

    Interest checking. All the firms offer interest-bearing checking
accounts, but for the most part, the rates are trifling. Rates on a
$25,000 balance range from a mere 0.10% at Merrill to 1.21% at E*Trade
and 1.51% at NetBank.

    ATMs. You can get an ATM card from any of the companies in our
survey, but prices vary widely. Most don't impose charges of their own.
Wells Fargo and Bank of America charge $2 per use at non-network ATMs,
but both operate thousands of ATMs. Fidelity, which has no ATM network,
gives you five free uses per month and charges $1 per use after that.
Schwab, which also has no ATM network, will rebate as much as $39.92 per
month for ATM charges you incur. Citibank, which has 9,800 ATMs, will
reimburse up to four surcharges per month as long as you live outside of
its marketplaces. American Express is generous with reimbursements as
well, and will give back up to $6 per month.

    Reporter: Alison Stevenson

    BANKER-BROKERS | How 11 big ones stack up in our rankings

    We rated 11 companies on a dozen criteria. For each one, a firm
received from one point (the worst) to five points (the best). Synergy
and brokerage commissions each account for 15% of the total score.
Amount of research, availability of cost-basis information, bill-payment
services, and ATM costs each contribute 10%. Brokerage fees, banking
fees, interest paid on sweep accounts, CD yields, interest paid on
checking accounts, and fees for mutual funds outside of
no-transaction-fee programs count for 5% apiece.


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