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Money December 2014

Dollar Sense

What’s Best for You -- Bank, Credit Union or Going Bankless?

By Teresa Ambord

The economy that motivates each of us is the economy of our own household. Sometimes that means ditching the bank and finding a way that suits our pocketbooks.

Most everyone relies on a bank or credit union for something or many things: deposit of paychecks, Social Security, or paper checks; and online bill paying, mortgages, car loans, ATMs and more. Like it or not, banks are part of our lives. But lately people are eying banks with more dissatisfaction than trust.

A Gallup poll taken in 2013 showed 74% of Americans had only slight confidence in today’s banks. Part of that, they say is the lack of transparency regarding fees. Many feel they can no longer predict how much the bank will charge them each month in various fees and that makes budgeting hard. It also doesn’t help that some major banks failed a few years back. Then there is the near‑zero interest offered on deposits, and the high rate of foreclosures, which many people believe is the fault of greedy banks (though that is seldom true). More and more, people are looking at banks the way the townspeople of Bedford Falls viewed Old Man Potter’s bank in the classic movie, “It’s a Wonderful Life.”

 

So Where’s George Bailey’s Building & Loan When We Need Him?

In 2002, banks were on a mission to get the “unbanked” to become customers. At that time, there was an estimated 10 million unbanked Americans. More than a decade later, instead of shoe‑horning those people into bank accounts, the number of unbanked has skyrocketed to 17 million. Clearly something went awry. In some ways, credit unions are taking up the slack, similar to what George Bailey’s Building & Loan did, when it rivaled Old Man Potter’s bank.

 

Are Credit Unions a Better Alternative?

In some ways, yes. Overall, credit unions get higher marks from a consumer point of view. Here is how they stack up:

 

Banks, accessibility and fees

  • Greater availability, longer hours, open on Saturdays.
  • ATMs are everywhere.
  • More likely to offer mobile banking and online tools.
  • Moneyrates.com says the monthly maintenance fee for banks averages $12, and overdraft fees average $30 per check.
  • Only 39% of banks offer free checking accounts.

 

Credit unions, accessibility and fees

  • Tend to be local and smaller, with shorter hours and overall less availability.
  • Fewer ATMs.
  • Without the overhead of big banks, some fees may be lower. Some credit unions charge only $20 per check for overdrafts. And some accounts do come with monthly maintenance fees of $2 to $5 per month if your balance drops too low, but the required minimum to avoid the fee is generally lower than you’ll find at banks.
  • 70% of credit unions offer free checking accounts.

 

Banks and Credit Unions Interest? What interest?

Credit unions tend to offer slightly higher interest on savings and checking, but don’t count on much. “Slightly higher” in this financial environment is pretty meaningless. If you want to compare, here are two interest trackers:

bankrate.com

nerdwallet.com

 

Banks and Credit Unions, Customer Service

Banks are striving to do better in this area. In fact, their ratings for customer service are up, though still lagging behind credit unions.

Credit unions are more likely to know you by face and possibly by name. Their customer service ratings are higher overall, though as credit unions have experienced a recent flood of new customers, their resources are more stretched and customer service has dipped a bit. Even so, they far exceed the customer service ratings at banks.

Of course, the choices are not limited to credit unions or big banks. Community banks can be very personal, less busy, and pretty competitive when it comes to fees. Harsher bank regulation in recent years has forced some community banks to close, or to merge with other similar-sized banks. But so far, many community banks seem to be hanging tough.

 

Suppose You Go Bankless, What Then?

Social Security no longer sends out paper checks, except in rare cases. Does that mean a recipient has to have a bank? Not really. You can receive your Social Security on a debit card. It’s called Direct Express, and you can register for this program online at GoDirect or by calling toll‑free 1‑800‑333‑1795. To sign up you need your Social Security number or claim number, and your 12 digit federal benefit check number, and the amount of your most recent federal benefit check.

Other payments you receive by direct deposit might also have alternatives if you decide to ditch your bank account. It can’t hurt to ask.

 

Check cashers

Check cashing operations have long been seen as the refuge of those with low income, or financial histories that make them shy away from banks. But those services have lately risen in stature. While their fees seemed high before, now that bank fees can be unpredictable, check cashers are starting to look pretty good by comparison. After all, there’s no mystery. You walk up to the window and read the fees like you’d read a fast‑food menu when you order a hamburger. No surprises, no accidental overdraft charges or long list of ATM fees.

A check casher might charge a combined flat fee and percentage, like $5 per check, plus 1% of the check amount. So a $1,000 check would cost you $15 to cash. The fee is one‑and‑done. While you are there you might also be able to purchase money orders for bill paying if you need them.

 

Bankfree?

It may be hard to imagine life without a bank relationship. To some extent, it’s hard to blame banks for trying to recoup losses by raising fees when they are locked in a government stranglehold of increasing regulation. But the economy that motivates each of us is the economy of our own household. Sometimes that means ditching the bank and finding a way that suits our pocketbooks.

 

Some Interesting Alternatives to Banks or Credit Union Accounts

The growing distrust of banks has given rise to new ways to receive money and pay bills, even though some actually involve banks. For many, the banking relationship has become less of a marriage and more of a “friends with benefits” situation.

  • Banks That Cash Checks. Some banks will cash checks for non-customers, though they charge a fee. The fee is fairly low compared to alternatives. Other banks, for example, Capital One, will cash a check for free if the check was issued by that bank.
  • A Bank Card for Non‑customers. Chase Bank has a prepaid card, called a Liquid Card, which offers great flexibility for $4.95 per month. You can deposit checks at any Chase ATM, track your balance, and manage your money. There are several transactions you can’t do, like check writing and online bill paying. But for the cost, the benefits are many.
  • Retailers That Cash. Major retailers like 7‑Eleven and Walmart let you cash checks for a flat percentage fee that is lower than most check cashers. Many 7‑Eleven stores have convenient check cashing kiosks. And Walmart will generally cash a check for a fee of $3 for checks up to $1,000, and $5 for a check between $1,000 and $5,001.
  • Prepaid Debit Cards (or Gift Cards). If you go bankless but want to pay bills online, once you’ve cashed your check you can buy a prepaid debit card at the grocery store. The fee is generally $5 or $6, and the card spends just like a credit card. Better still, there is no risk of having your identity stolen when shopping with one of these cards. I use these cards myself for safe online shopping. Bonus: several times a year these cards waive or reduce the fee, or in exchange for buying a card, they give you $10 off your next shopping trip at that store.

 

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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