If you're bedeviled by overdraft fees that can cost $25 to $35 a pop, try this: Get a bank or credit union account that is designed to prevent overdrafts. If your balance does go into the red, the financial institution won't charge you a penalty.
The nation’s five largest banks—Bank of America, Chase, Citi, U.S. Bank, and Wells Fargo—now offer these so-called lower-risk accounts, which offer just about all the same services a regular checking account provides but do not charge overdraft fees.
Citi's Access account, for example, provides a debit card for retail store and online purchases, free cash withdrawals at thousands of Citi ATMs, direct paycheck deposit and mobile check deposit, and online and mobile banking and bill-payment.
The monthly fee for this account at Citi is $10, but it's easily waived if you have one direct deposit per month of your paycheck, pension, or Social Security or other government benefit, or make one online bill payment per month. At the other banks the monthly fee is around $5.
The main difference between these bank accounts and regular checking: You can't write paper checks. That's how the bank prevents overdraft fees; all of your banking is done electronically via the debit card, which allows the bank to disburse funds only up to the amount you have on deposit.
Not offering paper checks is less of a problem than it may seem, because America is well on its way to becoming a cashless society. With online bill-pay, for instance, you make payments electronically, and if the biller hasn't yet gone digital, your bank or credit union will print and mail a paper check for you free—no checks, envelopes, or postage stamps to buy. With person-to-person (P2P) payments, you can send money digitally to virtually anyone.
If these lower-risk accounts sound a lot like prepaid cards, you're right. They are prepaid cards. That's exactly what Chase calls its Liquid card and what Wells Fargo calls its EasyPay card. The other three use names that don't quite sound like either checking or prepaid: Citi Access, Bank of America SafeBalance Banking, and U.S. Bank Safe Debit Account.
In recent years, prepaid cards issued by American Express, Walmart, Green Dot, and other brands that you might not think of as banks have evolved to become more like checking accounts. With the exception of Chase, whose Liquid card ranked highly in our ratings of prepaid cards, these major banks are playing catch-up.
“Those leading the prepaid card bandwagon are credit unions, Walmart, Amex, and Chase,” says Mike Moebs, economist and CEO of Moebs Services, a Chicago-based consulting firm that tracks bank and credit union pricing and products. About 30 percent of credit unions offer prepaid cards vs. 18 percent of banks, according to Moebs' latest survey of 3,800 financial institutions.
Banks offer one big advantage that makes their prepaid cards even more like checking: They maintain networks of branches and ATMs, where cash deposits can be made. Non-bank prepaid cards usually have no branches, so their cardholders have a harder time depositing cash to their accounts. Non-bank prepaid cards do have ATM networks, but cardholders usually cannot make cash deposits via those ATMs. Instead, they must rely on participating retailers, where they can "load" cash onto the cards.
Benefits for Low-Income Consumers
Lower-risk accounts might be a little hard to find because banks don't always prominently promote them.
Banks offer these accounts to help low-income consumers, who often get snagged by overdraft fees that they can't afford. That can push them away from traditional banks and into the arms of overpriced alternative financial service providers, such as check-cashing storefronts and car title lenders.
The lower-risk accounts can help re-open the doors to essential banking services for these underserved consumers. Last February, Richard Cordray, director of the Consumer Financial Protection Bureau, urged the nation's top 25 retail banks to offer and promote lower-risk accounts by featuring them prominently on their online checking account web pages and in their other marketing efforts.
"The lack of marketing for these products has lessened their visibility," Cordray said, and the concern is that the consumers who need these accounts most don't know they exist.
But when we looked at the five biggest banks' checking account web pages in late September, using a California ZIP code to let the bank know our location, their lower-risk accounts were still hard to find. On Wells Fargo's checking account web page, for example, the bank's regular, interest, and rewards checking accounts were easy to find on the first page of the site. But we had to scroll down to the bottom of the page to find a link to EasyPay.
It was a similar situation when looking for Bank of America SafeBalance Banking and the U.S. BankSafe Debit Account. Chase Liquid was not even on the checking account menu. Citi, however, had the most prominent positioning. Its Access account was included in a comparison of all Citi checking accounts.
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