Recently, we posted an article about alternative financial services, such as payday loans, check cashing services, rent-to-own stores, and new bill-paying services offered by retailers. These alternatives work for people who don't have access to banks for various reasons, whose local bank branch has disappeared since 2008, or who choose not to pay the high fees that traditional banks often charge. It's estimated that ten million Americans don't have traditional bank accounts, and are essentially 'experimenting' with such alternatives.
Added to this ten million is a growing number of those who are still holding on to their bank accounts, but are trying out a variety of other alternative 'checking-account-like' services to manage their money. Here's a quick rundown of four non-traditional services.
1. Prepaid Cards:
Prepaid debit cards have been around for a while, and Americans are using them more every year not just to supplement but to replace their bank checking accounts. Two services that have added checking-account functions to the basic prepaid debit card are the Bluebird card from American Express, and the Green Dot card from Wal-Mart. Features such as mobile deposits, higher account limits, and even physical checks are now available, depending on the provider. To this category is added Paypal, the online third-party service that started as a way for people to receive payments and place orders without revealing their credit card numbers. Paypal is still linked to user credit cards and bank accounts, but now has its own debit cards as well.
2. Online Basic Banking:
Still officially a bank, but with no physical branches to support, online banks are filling a niche by offering lower fees and in some cases higher interest rates than most traditional banks are able to do. An example of this type of service is the Federal Bank of Internet, which has one small physical location as required by banking regulations, but serves an online nationwide customer base with a variety of deposit and savings accounts, and in recent years has added many of the features and services of any other traditional bank.
3. Mobile Banking:
Mobile online banking has come into its own as a separate service, rather than being an add-on feature of traditional bank checking accounts. One such service is called 'Simple', a product of Bancorp. Users open an account online and receive a branded debit card that can be used anywhere. Because the card is accompanied by a mobile app, users can always see what their balance is, and the website offers budgeting and scheduled payments. Simple makes its money from merchant charges when the cards are used, rather than fees charged to users, and the accounts accept direct deposits from employers or Social Security.
4. Alternative Lending Websites:
Finally, although they are less like checking accounts than the others, is a category of online lending services such as Lending Club and Prosper. These have become more popular since banks began to tighten consumer loans in the aftermath of the financial crisis. Alternative lenders allow people to borrow money at lower rates than banks, although they charge origination fees and late payment fees.
As with any financial service, there are differences in the safety, security, and cost for all these services, so it pays to research the ones you are interested in, both on their own sites and through reviewers like Kiplinger.com.