Some of America’s banks have a dirty, little secret: low or no-fee banking options for people who qualify. And given the number of Americans who can't or don't use banks, that could be a lot.
Most of these options don't make the banks much, if any, money, so they don't actively promote them. A study released this week by the Consumer Financial Protection Bureau showed that banks generate more than half their profits on checking accounts through overdraft fees of $34 that exceeded the value of the items being overdrawn (on average $24). Some of the new options are from smaller startups. And for customers who don't always meet a bank's requirements for free checking and savings accounts, the monthly maintenance fees can be cheaper.
These alternative accounts offer options for the country's rising number of "unbanked" — which climbed from an estimated 9 million in 2009 to 17 million in 2011 — to use traditional financial services and avoid even heftier fees at check cashing and payday loan facilities.
Robyn Kuhn, a 24-year-old student and father from Gustavus, Ohio, said overdrawing his bank account got his bank cards canceled. Without them, he felt cut off from the entire banking and transaction system.
“I needed a debit card still to manage my money and pay my bills,” he said — as well as avoid surcharges for any mistakes he made.
So he got a BlueBird Card from American Express, one of several of this new breed of accounts that do away with overdraft issues by eliminating your ability to make them in the first place. “Bluebird had no fees,” he explained.
Some of the options available to customers like Kuhn are essentially souped-up reloadable debit cards. Others are more like bare-bones banking accounts. Both categories are FDIC-insured and work almost exactly like credit cards, with two major exceptions: you won’t get rejected for having a bad credit history and you can only spend the money you deposit.
Many tout their lack of overdraft fees as a selling point. This is despite the 2010 Federal Reserve ruling that made the overdraft protection plans that incur those fees optional. Nevertheless, unlike similar products marketed toward these groups in the past, there are no onerous hidden fees or celebrity tie-ins. And compared to other prepaid debit cards, annual costs for typical users top off at $59, as opposed to $195 to $457.
Here's a breakdown.
Bluebird Card from American Express
One sign that this is an AMEX for the 99 percent is that customers can buy a Bluebird Card start-up kit at Wal-Mart for $5. The card has some of the membership benefits of a regular AMEX, like 24/7 customer service, roadside assistance and limited purchase protection. Make cash withdrawals at ATMs, and deposits via Wal-Mart checkout registers, direct deposits, bank transfer or photo check deposit. There is no monthly fee. This card is unusual for a checking alternative option in that it also has a paper check component. Users just pre-authorize the checks in advance. American Express also has a similar service called “Serve” with a $1 monthly fee, and no checking option, but unlike Bluebird does allow for reloading by credit card.
Bank of America SafeBalance Banking
According to the Bank of America website, this type of account is if "you need extra help spending only what's in your account and avoiding overdraft fees." It carries a $4.95 monthly fee and requires a $25 initial deposit. Like all the accounts surveyed in this story, it comes with a magnetic strip card that works just like a debit card at checkout. Users can deposit and withdraw cash at Bank of America ATMs, and deposit checks by taking a photo with the mobile app. SafeBalance Banking also has online bill pay, but offers no way to write checks. Instead, customers can make payments by email, or by cashier's check or money order, after paying a small fee inside a Bank of America.
Chase Liquid Card
Chase says its option for lower-income customers is a “low-cost alternative to traditional checking accounts.” Simply walk into a Chase branch to open one up. It requires a $25 initial deposit and carries a $4.95 monthly maintenance charge. Liquid has no online bill pay feature or checking component, but it does let you send money to anyone with an email address.
This self-billed “anti-bank” was recently purchased by the BBVA banking group but has retained the features and service that made its customers loyal fans. Simple boasts an Apple-esque minimalist interface and has no startup or monthly charges. Instead of a checkbook, it lets you schedule checks online, which the company mails to the payee. Users can add funds by bank transfer or mailing in checks. If they want to deposit cash, customers have to buy a money order and use the photo check deposit function in the mobile app.