The big banks are tired of you leeching off them.
For years, they have given you free checking in the hopes you
would also take out a mortgage, run up your credit card balance or
stash away a tidy sum in your savings account. But instead, you've
been content to use your checking account and bypass the bank's
other offerings. In short, you aren't making them any money.
So the free ride is ending at many banks. Big names such as
Wells Fargo, Bank of America and Chase have either enacted fees or
restrictions that make their free checking not so free or are said
to be planning these changes. According to a
Wall Street Journal report
, bank customers must now maintain an average minimum checking
balance of $723 to avoid fees.
What's more, the average monthly fee on non-interest bearing
checking accounts has risen to a record $5.48. Maybe that doesn't
sound like a lot, but then you have your rising ATM fees, overdraft
fees and even, at some institutions, maybe even debit card usage
Enter the prepaid credit cards
To avoid fees and keep spending in check, recent reports suggest
more Americans may be turning to
prepaid credit cards
and debit cards instead of traditional checking accounts. Prepaid
cards offer the opportunity to load a preset amount of money onto a
card which can then be used anyplace the sponsoring card issuer --
typically Visa, MasterCard or American Express -- is accepted.
A recent study from the
Federal Deposit Insurance Corporation
found one in four households have used alternative financial
services, such as prepaid debit cards and credit cards, in the past
year. In addition, 10 percent of households have no checking
account, which may indicate some consumers are skipping their local
bank and exclusively using a reloadable card to manage their
Walmart hopes Bluebird will soar
While the American Bankers Association reports nearly 60 percent
of banks offer their customers prepaid cards, the game-changer for
2013 may be the introduction of American Express's Bluebird
Launched as a partnership with Walmart, the Bluebird prepaid
card is being marketed to the mega-retailer's millions of
customers. The hope is to cash in on disgruntled consumers who may
be feeling used and abused by fees at the big banks. While Walmart
and American Express are keeping hush on the details of how each
will profit from Bluebird, it isn't hard to see how the arrangement
will be a win-win should the cards take off with the public.
Not all prepaid cards are created equal
Although prepaid cards such as the
Bluebird promise lower fees
than checking accounts, consumers still need to shop around for the
best deal. The Pew Charitable Trusts studied the issue of using
prepaid cards as an alternative to checking accounts and found the
cards can come with a mish-mash of confusing fees and fee
The 52 general purpose reloadable cards examined in the study
had anywhere from 7 to 15 individual fees that could range from 50
cents to $9.95. What's more, fee disclosures for the cards could be
confusing at best for some products.
While the federal Consumer Financial Protection Bureau is
considering recommendations regarding how to standardize fees and
disclosures for prepaid debit cards and credit cards, right now, it
is up to consumers to do their homework.
If you are one of the consumers feeling smitten with prepaid
cards, be diligent about selecting the right card. Make sure you
can conveniently access your money and that you aren't trading your
high-fee checking account for a high-fee prepaid card.