Well, here I am dithering on about my recent experiences with rewards checking accounts, and off goes USA Today to do a story on those folks who live bank-free lives, primarily due to necessity:
USA Today: Many Shun Bank Accounts, But Pay More…
Well, yes, those close to the poverty line have long been “left hanging” by standard Main Street banking institutions. Short of overdraft fees, where’s the profit in the bricks-and-mortar managing of checking accounts that’ll be lucky to see a $1k balance at any point during the month? (According to one 2004 study, 83 percent of “unbanked” families make less than $25k per year.)
And savings accounts for these folks? Fuhgettaboudit.
From the article:
Nearly 8% of U.S. households, or about 17 million people, don’t have bank accounts, according to a 2009 study by the Federal Deposit Insurance Corp. An additional 18% — 43 million people — are “underbanked,” which means they have bank accounts but occasionally use check-cashing companies, pawn shops, liquor stores or other alternatives to cash checks, pay bills and borrow money… .
In an effort to bring more consumers into the financial mainstream, the board of the Federal Deposit Insurance Corp. is scheduled to vote today on a program to encourage banks to offer no-frills, low-cost checking and savings accounts. The FDIC’s model checking account would allow customers to open an account for as little as $10. While banks may decide to charge a low monthly maintenance fee, the accounts won’t have the kind of surprise fees — such as overdraft protection fees — that have led consumers to abandon banks, says FDIC Chair Sheila Bair.
Hmmm. I really feel like this sort of banking program has been tried before, another pilot program of some kind, and with not-so-good results. Meaning that participation rates were low, and dropout rates high. But perhaps I’m imagining that.
“While the majority of banks have offered free and low-cost checking accounts for many years, all banks will need to reconsider the feasibility of continuing to offer free accounts, given current economic and regulatory pressures,” Carol Kaplan, a spokeswoman for the American Bankers Association, said in a statement.
A 2009 analysis by Novantas, a consulting firm, estimated that even in a “good” year, about half of checking accounts are unprofitable, and that regulatory and economic changes could raise that figure to 75%.
Gotta love the American Bankers Association. Setting the rest of us up already for new fees and/or fee increases!
The Borrower wrote:
First of all, since when were checking accounts supposed to be profitable? Savings are based on the fact that money is supposed to sit there, but checking is a demand account. I find it ridiculous that these banks need to charge any fees for checking accounts – those fees on the lower middle class to minimum wage worker are the difference between a meal for their family or not. Besides by aiding these folks to operate their financial lives more cost effectively (i.e. avoiding check cashing places and payday loans) they will have a better chance of becoming a better customer in the future as their quality of life increases. I am just so frustrated with big banks being so short sighted and uncaring for those that need it the most.
Hazzard wrote:
Two words: Credit Union
I’ve found that the services at my credit union are low cost, and I receive higher returns on my deposits. I would never consider using a commercial “for profit” bank again. I tend to rave about credit unions on my blog because it just feels like a better choice. Why do business with an institution that is trying to make a profit off of me? I’d much rather pool my money with other like minded people in a credit union where they don’t make a profit.
Hazzard
Michael wrote:
Hazzard,
I’ve been a credit-union member (and fan) since I was a kid. I still remember going, with my mom, to open up that first savings account. Think I was in first or second grade.
Until ING Direct came along, credit unions always had ~95 percent of my business. ING took a lot of it, especially when Electric Orange came along. But now that my CU offers a 4+% reward checking, I’m back to using them predominantly.