Is it time to part ways your bank? There are more options than ever for people looking for a different kind of banking experience — many of them without the onerous fees and requirements of traditional bank accounts.
[Updated on 1/17/13] According to the FDIC, 821,000 households ditched their banks between 2009 and 2011. The financial crisis, the foreclosure robosigning scandal, and the huge amounts of money banks were raking in from fees turned consumers against their banks. Even as new regulations have forced banks to change some of their ways, more customers are expected to close their accounts going forward. A survey by Javelin Strategy & Research found that 11% of Americans plan to switch banking institutions in the next year. If you’re one of them, it may be time to desert traditional banks entirely and consider one of these alterna-bank options:
Full-feature prepaid debit cards
Maybe you’ve been scared off from banks by overdraft fees and other zingers that sap your balance. You don’t mind paying a little bit, but you want to know what fees you’re paying upfront. You don’t really use paper checks, but you’d still like to get the other perks that come with a regular bank account. If these descriptions apply to you, look into prepaid cards.
What’s good: There’s a lot more competition today. The prepaid landscape has expanded greatly over the past couple of years, prompting providers to lower fees and add features.
What’s not: Prepaid cards are still mostly unregulated, consumer advocates point out. The Consumer Financial Protection Bureau will be taking a look at the prepaid debit card marketplace, but so far there’s limited oversight. Most prepaid debit card providers voluntarily comply with rules for regular debit cards, so that customers are protected if a card is lost or stolen. Still, providers aren’t required to comply. The lack of rules also means there is something of a free-for-all when it comes to fees. Many card providers claim transparency, but you still have to examine the fine print to figure out if a card is a good choice for you.
Standouts: Last year, a number of national and regional banks muscled into the prepaid card market, which had previously been the territory of companies like UniRush and Green Dot. The two options that have attracted the most attention lately are Chase’s Liquid card and Bluebird, a checking and debit alternative jointly offered by American Express and Wal-Mart. Liquid charges a relatively low monthly fee of $4.95 that’s waived if you link the card to a Chase checking account; Bluebird doesn’t charge a monthly fee at all. With both cards, you can get direct deposit and withdraw cash for free at in-network ATMs. The cards can be used to pay bills online, and deposits can even be made remotely by taking a picture of a check with your smartphone camera.
Web banking and budgeting accounts
New web-based platforms deliver a combination of banking and budgeting tools. They aren’t banks. But they do partner with institutions that provide many of the services included in typical bank accounts. These platforms are loaded with money management tools as well, which help users keep track of spending.
What’s good: If you’re a fan of personal finance platforms like Mint.com and wish you could keep your money in the same place you manage it, this option gives you one-stop-shopping on your computer or smartphone without the fees that weigh down most regular checking accounts. Heavyweight analytics tools give in-depth insight into your spending habits.
What’s not: If you want an in-person banking experience, this probably isn’t for you, and some standard bank account features (like paper checks) might not be available.
Standout players: Startup Simple is a sort of mashup of Mint.com and a free online checking account. It offers users “detailed information that allows customers to search their accounts with plain English commands,” explains the New York Times.
Another option, Kasasa, acts as a sort of middleman between consumers and a network of community banks and credit unions around the country. Since your “soul mate” bank might be halfway across the country, Kasasa reimburses customers for ATM fees. Kasasa’s 360 money-management platform gives customers budgeting and spending analysis tools. What’s more, accountholders earn rewards (cash back, free apps and music, and more), which is notable because checking-account rewards programs are virtually extinct these days.
Prepaid debit with high-interest savings
This category of alterna-bank combines the functions of a prepaid debit card account with the high-APR (relatively speaking) savings feature that is a selling point for online banks like ING Direct and Ally.
What’s good: Interest rates in the 5% ballpark — much, much higher than the average bank account rate, which is barely above 0% — are not unusual. Some providers offer budgeting and personal finance tools too.
What’s not: In a word, the fees. The eye-popping interest rate is the eye-catching figure these providers want you to pay attention to, but take a look at the fee schedules to find out if you’ll really be saving any money. Some cards we’ve seen go so far as to charge a fee with every transaction. That’s a quick way to deplete whatever interest you’ve earned, and then some.
Standout: Mango is one of the more transparent cards out there. It offers a 6% interest rate on up to $5,000 for customers with direct deposit, and you can avoid the $5 monthly fee with direct deposits of $500 or more monthly. (There’s also a $20 bonus for signing up for direct deposit.) But other fees — like $2 for ATM withdrawals and $10 to get remaining funds via check when you close the account — can really cut into the 6% you’re earning.
Mobile bank account
Talk about the circle of life. Green Dot, one of the granddaddies of prepaid debit, rolled out a mobile bank account this week, following its acquisition of a bank in 2011 and mobile location-service provider Loopt last year.
Called GoBank, it’s designed to appeal to consumers who grew up with smartphones and social networks. The entire experience takes place via the bank’s apps for iOS and Android or through a user’s mobile web browser.
What’s good: It doesn’t hit users over the head with fees. The monthly fee is set up on a sort of honor system; there’s a “pay what you want” feature that lets customers choose an amount varying from nothing to $9 a month. There are no overdraft fees and few other fees (like $2.50 to use an out-of-network ATM). Direct deposit and mobile check deposit using the phone’s camera are free. Users don’t get checkbooks, but the bank will mail a paper check to anyone on request, or they can send money to people via text message or through Facebook.
What’s not: To deposit cash, users can buy a Green Dot MoneyPak for around $5, or deposit cash fee-free at Walmart cash registers with a swipe of your debit card. Green Dot plans to make this feature available at more retailers in the future. For people who aren’t used to conducting transactions via their phone — or who don’t have a smartphone — GoBank won’t be a viable option. But GreenDot is betting that younger consumers would rather have their bank at their fingertips than down the block.
(This post originally did not include information about GoBank’s swipe-based cash deposit function.)