Sick of Fees? Here Are Some Other Banking Options

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banking alternatives for those who are sick of feesWhen people talk about the American dream, banks are usually somewhere in the background. Whether the goal is buying a house or going to college, starting a business or taking a vacation, the bank is where people save their pennies and get the loans that make everything happen. But what if -- instead of making your dream come true -- your bank relationship actually costs you money?



Ideally, banks are supposed to provide a secure place to store money and a steady stream of compounded interest to make the pile bigger. But, between falling interest rates and rising fees, many bank customers have found that, instead of getting richer, they're actually losing money. Part of the problem is the government: Traditionally, banks invest their deposits and pay interest to their customers. But with the Federal Reserve lending money at 0% interest, there's no reason for banks to pay interest to their customers. At the same time, 2009's CARD Act cut many of the hidden fees that banks were using to boost revenue from credit cards; in response, many banks created new fees to help them ensure a steady stream of income. Many banks have added or increased fees for online bill pay, online account transfers, coin deposits, and dozens of other services that used to be relatively cheap, or even free.

Put It on the Card

One increasingly popular alternative for stashing cash is refillable debit cards, which resemble credit cards but are not attached to bank accounts. Customers can buy the cards, deposit their cash onto them, and use them in much the same way that they would use a credit card. Most cost a few dollars to buy and carry a small monthly fee. For households that spend most of their monthly income, these cards offer a convenient way to handle their money.

Unfortunately, many of these cards, which are offered by banks, come packed with the same brutal fees that plague traditional bank accounts. In fact, thanks to a loophole that banks lobbied to have placed in the CARD act, banks are able to hit refillable debit card users with fees that are illegal for more traditional credit card accounts.

Walmart offers a promising solution to the debit card problem: its money card costs $3 per month to use, but doesn't have any automatic fees. Customers can directly deposit their paychecks onto the cards, can use them like credit cards, and can even get their cards -- and their money -- replaced if the cards are stolen. For many users, the cards are a lot cheaper than traditional bank accounts.


Credit Unions


For people who want a full-service bank, but don't want to pay huge fees, credit unions are a great choice. Basically not-for-profit, member-owned banks, they follow fairly close to the traditional banking model: Most of their money comes from loans, not investments, and much of their profit goes back to members in the form of compounding interest and lower-rate loans. Because their profit model doesn't rely on fees, credit unions don't have many of the charges that banks commonly tack on. In fact, some credit unions even reimburse the fees that their customers pay for using other banks' ATMs!

Admittedly, there are some drawbacks to credit unions. To begin with, most only have a few branch offices, and they don't have as many ATMs as major banks. Then again, with many banks tacking on or increasing fees for ATM usage, the benefit of large numbers of ATMs may be fairly limited. For that matter, many credit unions belong to co-op, cashpoint, or other ATM networks that vastly increase the number of places where customers can access their money.

Given the choice between high-cost banks and lower-cost credit unions, it's not surprising that many customers are moving their money. According to the World Council of Credit Unions, more than 91 million people -- almost 44% of the economically-active population -- had accounts at credit unions in 2010. Since then, the numbers have risen even higher: On "Bank Transfer Day," a widespread protest in November against high-fee banks, an estimated 40,000 bank customers moved their accounts to credit unions. According to the Credit Union National Association, approximately 650,000 customers did the same over the course of the preceding month.

For some bank customers, refillable debit cards are a simple, safe way to handle money; for others, credit unions offer the best option for cash management. Regardless, one thing is pretty consistent: for many customers, traditional banking is a waste of money.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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67 Comments

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Scarah

I think this guy has a pretty awesome mustache and beard....... just saying!

December 20 2011 at 2:07 PM Report abuse rate up rate down Reply
LEE Resolution

excessive and unnecessary interference by the government drives costs up. Same with the insurance industry, oil/gas, health care and any other private sector enterprise (large or small).

the consumer pays the rising costs.

December 20 2011 at 8:24 AM Report abuse -2 rate up rate down Reply
Consiglieri

This is just another whiny article pandering to people that are unhappy with their situation and looking for someone to blame. In fact, it such a crowd-pleaser that AOL has listed the headline on its "Financial News" page for almost a week now....

Face it - your displeasure has nothing to do with bank fees. It has to do with the fact that you are struggling and other people are prospering. You are angered by anyone else accumulating wealth while you are not - and that's an understandable frustration.

We all pay fees for products and services that we use. A couple of hundred dollars a years for a banking relationship pales in comparison to some of the other fees we are charged for far less.

You think the credit unions are so great? Try looking to them for a business loan....

December 20 2011 at 8:15 AM Report abuse +1 rate up rate down Reply
bamdude1

Dont believe the hype about credit unions. Many of them are as bad or worse than banks. Many charge high overdraft fees, many do not use the process of closing the book at the end of the day, so you get charged overdraft fees as the overage occurs, even if you deposit money 1 minute after the overdraft occurs, and many of these so called 'co-opts" will allow you to deposit in some other co-op atm but then they hold the funds until the check clears, causing, again, over draft fees. Finally, many do several overdrafts per day (ie, one overdraft fee then causes many others) and finally, many credit unions that do not use the close book at end of day process also, charge overdraft fees even though you may have put money into the night drop box. They deposit from the night drop when they decide to and in the mean time, the computer they use, clears checks and NSF fees are assessed.

December 19 2011 at 7:37 PM Report abuse rate up rate down Reply
1 reply to bamdude1's comment
joehennes

The only cause of overdraft fees is poor planning. Period. You don't write a check for funds that have not been deposited and CLEARED. You can check online and know when the funds are available, you can check every five minutes if you want. I honestly don't know or care what my CU's overdraft/policy fee is, because I don't over-draw. This is not because I am wealthy, it is because I am *careful*.

Except for international service fees and other-bank ATM fees, I don't pay any fees at my credit union and I haven't for decades.

December 20 2011 at 10:16 AM Report abuse rate up rate down Reply
rsargerod

Alternative to saving is to do as Canada has done with their Banking System, they have allowed for the TFSA (Tax Free Savings Account) this allows you to reiinvest your money anywhere you want without being penalized with Taxes. The American Banks need to do the same.

December 19 2011 at 5:22 PM Report abuse rate up rate down Reply
Danie Clarke

I buy things i am gonna need that won't go bad because mostly everything goes up in price so i make a great interest rate that way than keeping money in a bank. Cash won't feed you in hard times while dried beans will and they always go up in price.

December 19 2011 at 4:25 PM Report abuse rate up rate down Reply
fturco55

the parodox is that the president cant get elected until shares of ba are at 15//financials must succeed for a good economy

December 19 2011 at 4:13 PM Report abuse rate up rate down Reply
BUFFALO

I have no fees on anything?? When I hear people speak of fees I think what they really mean is charges? Its not a fee when you over draw your account its a charge.

December 19 2011 at 3:54 PM Report abuse +1 rate up rate down Reply
randallalbin

how about going back to putting cash under the mattress? what is this economy doing for anyone except for the well-to-do?

December 19 2011 at 2:48 PM Report abuse +1 rate up rate down Reply
aniconn

We never use an ATM or debit card. I can never understand why they are so attractive. Think your purchases and cash needs ahead of time. I actually think the use of them contributes to more money being spent.

December 19 2011 at 11:45 AM Report abuse +2 rate up rate down Reply
1 reply to aniconn's comment
netexas121

So when you go out and make a purchase of several hundred dollars you carry cash? Along with what? An Uzi? I use the plactic credit/debt card from my credit union and nearly always never carry cash. Sort of difficult for thieves to attempt to use plastic.

December 19 2011 at 1:45 PM Report abuse +1 rate up rate down Reply
1 reply to netexas121's comment
aniconn

I use a credit card for purchases, not a debit card.

December 20 2011 at 9:59 AM Report abuse rate up rate down