Sick of Your Bank? 4 Alternatives Worth Considering
Have you thought about switching banks lately?
If so, you’re not alone. A 2012 survey by Javelin Strategy & Research found that 11% of Americans plan to switch banking institutions this year. And online banks are becoming an increasingly popular choice. From 2010 to 2012, deposits at such banks rose 32% to $364 billion–a figure that has quadrupled since 2004.
Many people are fed up with rising and sneaky bank fees. Others no longer trust the large traditional banks, who’ve been hit with scandal after scandal, including manipulating interest rates and robo-signing mortgages.
In fact, there are alternatives out there that may offer higher interest rates, better apps and even—in the case of at least one new “mobile” bank—the ease of managing nearly all of your financial transactions from your phone.
But are these 21st-century banks really a good option for storing and spending your money? After all, online-only banks hold just 4.2% of all bank deposits. We’ll help you explore the risks and benefits of four new cutting-edge alterna-banks, so you can make the best decision of who to trust with your hard-earned cash.
1. Online Bank Accounts
Online banks like Ally, Capital One 360 (formerly ING Direct) and Charles Schwab offer almost all of the same services as their brick-and-mortar counterparts, just without the paperwork. Because they save on overhead by not having physical locations, they can pass on the savings to you in the form of higher interest rates around 1%, when the average savings account interest rate in March of 2012 was just 0.5%. (You can look up and compare current rates here.) If the bank was built from the ground up on the internet, you’ll find the online experience intuitive, unlike some traditional banks who layered online banking on top of their other services in an ungainly way. Some new online banks, like Simple, even help you reach your financial goals with budgeting tools similar to LearnVest’s Money Center.
The downsides: For those who have always banked in person and are comforted by the in-person interactions, it might be difficult to switch entirely online. National, online banks do not offer the level of personal service that your local credit union might. And even for those who relish the transition, every once in a while you just need a bank branch to complete a transaction, like if you lose your debit/checking card and need to get cash out. In those times, you’ll find the week or more wait for a new card painful. Additionally, not all online banks offer home or business loans. While many online banks let you take money out of your checking account anywhere and refund you the ATM fee, not all do, so make sure to look into the ATM fee structure.
Who it’s good for: If you rarely visit your bank branch and put a lot of importance on an easy-to-use web interface, compare your current brick-and-mortar bank’s rates and services to an online option.
2. Prepaid Cards
Prepaid cards are like credit cards, letting you shop online and swipe for purchases. But instead, you put your cash right onto the card, and you’re limited to spending just that amount.
As the field has gotten more crowded, prepaid card providers have lowered their fees and added features to attract customers. A category leader is Green Dot, which is behind Visa and MasterCard prepaid cards, but more well-known financial service providers have started offering prepaid cards. Chase now offers Liquid, and American Express has teamed up with Wal-Mart to offer Bluebird. You can remotely deposit checks to either card by taking a picture with your phone, pay bills online and use in-network ATMs for free. Liquid waives its $4.95 monthly fee if you link it to a Chase checking account, and Bluebird has no fee at all.