You might know the Bob Dylan song, “The Times They Are A Changin.” While Bob was singing about changes in our society, you could sing the same song about banking today. The banks they have been a changin, which means now might be a good time to review your banking relationship and see if it’s time to ditch that big bank.
Fees have steadily increased
One important thing to keep in mind is that banks have been slowly but surely increasing their fees over the course of the past two years. And free checking has almost disappeared. I saw one survey that only 39% of banks now offer a checking account that requires no minimum balance and no monthly fee – which is the standard definition of a “free” checking account. This is in comparison to 2009 when 76% of banks had free checking. In addition, the average monthly fee for a non-interest bearing checking account has risen to a record high of $5.48, an increase of 25% over 2011.
You would not be alone
If you were to decide to cut off your relationship with your big bank, you won’t be alone. More than 5.6 million Americans have closed accounts with big banks and 214,000 of them opened new accounts at a credit union. This is because many people became fed up with the lower interest rates, increased bank fees, and poor customer service found at so many big banks. One good example of this is when in 2011, Bank of America announced it was going to charge monthly fees for its debit cards, the hue and cry from outraged customers was so strong that the bank had to quickly back away from this idea.
Change to a credit union
There are two alternatives to a big bank checking account that have become increasingly popular. The first is to transfer to a credit union. They are literally owned by their customers so are responsible to them and not to shareholders. Plus, credit unions are basically non-profits, so can charge less for their services and offer higher interest rates on savings than commercial banks.
Use money market mutual funds
Another option worth considering is to put your money into a money market mutual fund. These funds are investments in short-term CDs or securities such as government bonds or treasury bills. You will likely have to make a minimum initial investment that ranges from $500 to $5000. However, unlike a certificate of deposit account, you can regularly access your money. There may be a minimum amount for which you could write a check and you will probably have to pay management fees. You might also be restricted as to the number of checks that you can write per month or per year.
Think about this
One important thing to consider before switching from that big bank to a credit union or money market mutual fund is the technology offered by your current bank versus the competition. For example, some credit unions cannot offer options such as online bill pay. Most have fewer ATMs then do the big banks although your local credit union may belong to a network that would allow you to access your money from ATMs across the country. Also, very few offer personal finance management tools such as smart phone apps that can help you manage your money and your debts – although some do now have mobile banking and remote deposit.
Could you become “unbanked?”
A final option is to become a member of what’s called the “unbanked.” I saw one recent survey that 17 million Americans live in unbanked households. This has been made possible by the growth of prepaid debit cards and money orders and by the fact that grocery chains and discount stores have jumped into the financial services business. While being unbanked isn’t for everyone it might be worth consideration – depending on your financial needs and how much you dislike big banks.