Well, it’s technically not a checking account, even though it functions like one. It’s a money-market account called E*Fund issued by Citizens Trust, a small mutual fund family. You could read all about it just by clicking, but then I wouldn’t have the fun of telling you myself, so PLEASE DON’T CLICK THIS.

E*Fund is in New Hampshire. To open an account you need $1,000 to start, but after that your balance can be as low as a penny or as high as $15,000 (or your monthly direct-deposited paycheck, if you earn more than $15,000 a month). E*Fund accepts both electronic “direct deposits” and regular old checks that you send in by mail. You start earning interest from the day your checks are received. (There’s a 5-day “escrow” period before you can spend it, to be sure checks clear.)

Apart from a $35 annual fee, and 65 cents each time you get cash from an ATM, the account is free — and pays about 6% interest.

E*Fund was the #1 money market fund for total return out of 287 recently.

“There’s no free lunch,” I told its founder, Sophia Collier. “You must be taking more risk than other money-market funds.”

No, it turns out, she’s not. Indeed, E*Fund sticks to ultra-safe investments. It doesn’t “reach for yield,” as do some of its slightly-more-risky competitors.

Rather, the secret of its higher total return is the free debit card all E*Fund clients get. It works like any other MasterCard debit card — use it to buy anything and the cost is immediately subtracted from your account balance.

But here’s the twist. As you know, when you buy something with plastic, the merchant pays 2% or so to the card company for processing the transaction. (It’s often a little more that 2% with a credit card, usually less than 2% with a debit card.) Well, with E*Fund, 1% of each transaction gets added back into the fund, up to a limit set by law (9.75% of the fund’s gross investment income.) So E*Fund’s award-winning total return is generated not by risk — but by innovation. (And by very low overhead and expense charges.)

Note that you do not have to use the debit card yourself to get this extra return, although it’s encouraged. If no one used it, there would be no extra return.

You get no float or frequent flier miles for using the debit card (which is why I wouldn’t use it if I had an E*Fund account); but neither do you risk racking up 18% interest charges (which is why those of you who run occasional balances on your credit cards should switch to debit cards).

The $15,000 maximum account balance is to keep rich folk from free-riding, as it were, on the debit-card transaction fees generated by ordinary folk paying for their groceries with the debit card.

Interestingly, here’s a case where the little guy can actually do better — earn a higher return — than the big guy. Sophia likes that.

Tomorrow, I’ll tell you more about Sophia’s background and philosophy. You may or may not agree with her politics, but you can’t beat her total return.

Incidentally, as an avid CheckFree user, I was happy to hear that, yes, CheckFree works fine with the E*Fund account. As do the checks you write by hand or print with Quicken or Managing Your Money.


Tomorrow: Who Is This Sophia Collier and How Come WE Didn’t Think of This?


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