By Teresa Kuhn, JD, RFC, CSA
President, Living Wealthy Financial
As ATM fees and overdraft surcharges continue to climb, greater numbers of Americans are ditching traditional banks for more financially viable and often less frustrating alternatives.
An interesting survey conducted in 2015 by the FDIC, highlights the trend away from traditional banking to alternatives ranging from the much-maligned neighborhood check cashing services to more exotic instruments such as Bitcoin or smartphone banking. (https://www.fdic.gov/householdsurvey/2015/2015report.pdf)
Professor Lisa Servon, author of “The Unbanking of America: How The New Middle Class Survives,” has researched the move away from traditional banking, not only by uneducated and lower middle class groups, but also by young, affluent Americans. Servon noted that as she began researching her book, she was surprised to discover that it wasn’t only lower income people who are unbanked or underbanked, but a growing number of middle class as well.
“..people were making oftentimes very rational decisions, and I also found out that it wasn’t just low-income people in places like the South Bronx who were using alternative financial services. It was also people who own their homes, who have college degrees, who make $50,000 or $75,000 a year. And that was a huge surprise,” she said in a recent NPR interview.
If you’ve been following Living Wealthy Financial for any length of time, you know that my favorite way to “unbank” my clients is through the use of a specially-structured Bank on Yourself© plan. I have several clients using Bank on Yourself who do little to no business with traditional banks.
Bank on Yourself is certainly a great place to start if you are someone who wants to bypass the banking industry. However, there are other alternatives that might be worth looking into as you strive to take control of your financial destiny. These non-banking choices all come with pros and cons, and my advice is to spend a lot of time examining the fine print before you make any commitments. Be sure to DO THE MATH and ensure that you know the worst case scenarios when it comes to surcharges and fees.
Here are a few choices for those who are ready to UNBANK.
It’s slightly sexy, futuristic, unregulated (for the time being) and it is here right now. Bitcoin is a bank alternative based on the “block chain” that was invented by a programmer in 2009. There’s no global, central clearinghouse in the bitcoin world. Bitcoins are considered to be an experimental digital currency that is “mined” (bought and sold) via online exchanges.
Bitcoin is slowly gaining acceptance, especially with smaller online retailers and with those who are engaging in peer-to-peer transactions because transferring bitcoins to someone else is usually free. This is in contrast to services like Paypal, which typically charge fees for transfers.
Even so, bitcoins fall a little bit on the nerd side of life when it comes to complexity and they may have some potential pitfalls. For one thing, bitcoin prices can be volatile and many larger e-commerce sites don’t accept them yet. Still, the growing interest in bitcoin seems to indicate that digital currencies are on the verge of becoming a viable means of unbanking.
- Privately Issued Currencies
Private currencies are currencies issued by private parties. These could be individuals, businesses, non-profits, or municipalities. Today there are over four thousand privately-issued currencies in more than 35 countries. These include barter credits, private silver and gold exchanges, and digital currencies.
A vast majority of private currencies are locally-based and considered to be complementary currencies.
For example: residents of the city of Ithaca, New York have had access to a private currency called “Ithaca Hour,” which may be used to buy goods and services locally. Similarly, citizens in the Berkshires region of Massachusetts can use “Berkshares,” in nearly 400 area businesses.
The success of these and other regionally-based currencies has caused many cities to look into the programs as a means of increasing patronage of local businesses and provide additional revenue for the city.
- Online Banks
An increasing number of sites, such as Bank of Internet, USA (https://www.bankofinternet.com/), Everbank (https://www.everbank.com/), Ally Bank (https://www.ally.com/), and others offer the unbanked a variety of services, including mortgages, business loans, debt consolidation, and IRA’s. The convenience of not having to wait in line to deal with surly tellers combined with lower fees and sometimes higher rates of return, make online banks a good fit for many people.
Again, if you are considering moving your money online, you need to do your homework and understand all the potential issues associated with digital banking.
Since they save on overhead by not having physical locations, online banks are able to pass on the savings to you in the form of higher interest rates. Unfortunately, unless the bank was built to be digital from the get-go, you could find out that online banking is less intuitive and more frustrating. Some traditional banks that offer online services have interfaces that are difficult to navigate and don’t work well on mobile devices. If you are considering online banking, do some research and look for a bank that was built to be digital.
- State-Owned Banks
As of today, there is only one state-owned bank, The Bank of North Dakota, but as consumer disillusionment with the banking industry grows there are likely to be more on the way. In fact, nearly twenty states are seriously considering implementing state banking systems based on the Bismarck model. A state bank differs from mainstream banking in one key aspect: deposits are guaranteed by the state and not the FDIC. States with budget surpluses are the obvious candidates for these kinds of banks while states teetering on the brink of insolvency (California?) are unlikely to ever implement statewide banking. Still, for a lucky few who prefer brick and mortar banking, state banking may offer better rates, more transparency, and better customer service.
- Credit Unions
Are you one of those “little bit country, little bit rock-and-roll” folks who enjoy the benefits of technology, but also need human contact when it comes to finances? If you are, then you might consider joining a credit union instead of putting money in one of the Big Banks.
Credit unions are not-for-profit financial organizations that are member-owned cooperatives.
Like banks, credit unions arrange loans, set up retirement accounts, take deposits, provide ATM services and an array of other financial services. In general credit unions provide a safer place to save and allow their members to borrow at reasonable rates. Their lower operating costs allow them to pass on the savings to their members.
Credit unions are often offered as a company benefit. There are also credit unions that are community-based. If you live or work in the community, then you probably qualify for membership, which can save you thousands in fees as well as provide you with many valuable benefits.
- Prepaid Cards
Prepaid cards function like credit cards, letting you shop online and swipe for purchases. With these cards, you put your cash right onto the card, and are limited to spending only the available amount.
Several years ago, prepaid cards were not an ideal choice due to high fees and lack of features such as cash back and points programs. However, as more big names have entered the arena, prepaid card providers have lowered their fees and added features to attract customers.
Many well-known financial services providers offer prepaid cards. Chase now offers Liquid, and American Express and Wal-Mart have Bluebird. These cards allow a user to remotely deposit checks to by taking a picture with your phone, and pay bills online. Many times, use of in-network ATMS is free.
These are just a few ways Americans, including the affluent and entrepreneurial-minded, are divesting themselves from traditional banking and getting more control over their finances.
If you have questions about how you can begin the process of “unbanking” yourself, call our offices at 1(800)382-0830 and arrange for a telephone consultation with one of our trained experts.