Alternatives to Checking Accounts

A growing number of consumers are choosing alternates to the traditional checking account. Some have become frustrated by the increasing number and amount of fees for checking accounts. Others are unable to open an account because they have received a negative rating by ChexSystems for too many bounced checks or unpaid overdrafts. Then there are those who never have become part of the standard financial system. According to a 2012 Federal Deposit Insurance Corporation (FDIC) survey, about 10 million U.S. adults do not have a bank account. The good news for all of them is that businesses, ranging from financial institutions to retailers, have found there is profit in designing and making the alternates available. Those new options have been reducing the usual high cost of financial transactions, such as paying bills or cashing a pay check, without a checking account.

The most popular alternate is the prepaid vehicle. They involve no verification of a credit score or listing on ChexSystems. Prepaid can come in the form of a debit or credit card. Essentially these represent what the financial services industry calls “stored value.” They are cards which are preloaded with funds and can be continually reloaded.

There are many versions of them so comparison shopping is a must. For example, the older forms, which had developed loyal customers, continue to impose relatively high fees. Those could be for activation or each deposit. They may also require a minimum initial deposit.

Newer entries to this market, however, frequently have no or low activation or monthly fees and allow unlimited free deposits at brick-and-mortar financial institutions, retailers, online, and ATMs. A former drawback had been that funds were not insured by the FDIC. But now more new entries to this market provide that FDIC protection up to $250,000.

As for paying bills, some of the newer ones are allowing check writing, electronic payments, and even ordering merchandise online and renting cars. For that, most do charge a fee per transaction. How much varies. Again, read the fine print.

Since the prepaid product space is becoming increasingly competitive, including partnerships between giant financial institutions and retailers, consumers should make it their business to be on the look-out for introductory and special offers. They can do that by surfing the web under keywords “prepaid cards,” reading the promotional material coming in snail mail, studying the ads in the media, and talking with friends.

Another alternate is through mobile technology. Both established financial institutions and entrepreneurs are developing ways to deposit funds and pay bills without having to open the classic checking account. Often those are hybrids which combine the basic services of checking with no monthly management or overdraft fees. That waiver of fees is a common feature of Internet banking.

The more traditional option for paying bills without a checking account is through money orders. For them, fees vary. It is worth comparison shopping for the amount of fees.

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