On Saturday, November 5th, Americans left their banks in droves and shifted their checking accounts – and loyalties – to not-for-profit credit unions. But as the New York Times reports, some of those who left their banks ended up at another for-profit behemoth: Wal-Mart. The megastore now offers any number of a la carte services, from check cashing to money transfers to prepaid debit cards. But are these products any better for consumers than high-fee checking accounts?
Damned with faint praise
The New York Times article profiles a number of consumers who left banks’ high overdraft and checking account fees for Wal-Mart’s relatively simple, upfront cost structure. And in all fairness, Wal-Mart does offer much more reasonable rates than most check cashers.
But most check cashers offer terrible rates. And credit unions offer no check cashing fees at all for members with a checking account. Leaving Bank of America for Wal-Mart may be a (slight) step up, but most people can do much, much better with a decent credit union checking account.
Then there’s the question of incentives. Credit unions are not-for-profit, and some are chartered specifically to serve low-income, underbanked communities. Those that are federally chartered cannot charge interest rates above 18%, and many have waived checking, overdraft and other fees voluntarily. They offer good products because that’s their job: serve the community.
Wal-Mart, on the other hand, has never been accused of putting its shareholders last. It can take advantage of economies of scale, like it does with everything else, and offer financial services at a lower cost than most admittedly shady competitors. But given the availability of actually consumer-friendly banking products, there’s no reason to stay with the Money Center.
Its services are so 2009
Wal-Mart’s research finds that 60% of its customers have bank accounts, and that those customers paid an average of $200-$400 in fees, mostly overdraft and monthly maintenance charges. The caveat here is that the study took place a year and a half ago.
But after a Federal Reserve ruling in 2009, banks are required to notify you every time you overdraw and get your explicit consent before allowing the transaction to process. And as we’ve said throughout this piece, many credit unions offer completely free checking with no minimum balances whatsoever.
Check cashing services at Wal-Mart run 1% with a maximum of $3, up to a $1,000 check, but you can direct-deposit your wages into a credit union’s account for free (and some will actually give you rewards for doing so).
And then we come to debit cards: Wal-Mart offers the MoneyCard, which to be fair has fewer and clearer fees than most prepaid debit cards. But it comes riddled with charges like $3 charges each for activation, monthly maintenance, ATM withdrawals, and reloading. These can easily add up to more than even the most exorbitant big bank checking account will levy. And all the while, credit unions offer debit cards for free.
The subtle dangers of “banking” at Wal-Mart
Aside from higher fees, which are pretty easily quantifiable, there are two indirect negative effects when banking with the giant smiley face: saving and spending. If you rely on Wal-Mart for your financial services, you’re not likely to open or actively maintain a savings account. This discourages people from putting money away for college, retirement or simply emergencies. While a bank or credit union can offer to automatically split your paycheck between a savings and checking account, Wal-Mart can only hand you the cash.
Which brings me to the second point: spending. One reason Wal-Mart is so eager to offer check cashing for such a low price is that it hopes you’ll spend your paycheck at the store. It’s difficult to save money or spend responsibly when the first thing you see after you cash your check is a focus-grouped, well-researched, immaculately displayed item whose sole purpose is to tempt you.
Bank Transfer Day is all well and good, but stay in the system
Having a checking account, to say nothing of a savings account, provides substantial advantages: it’s safer than carrying money around, it’s conveniently linked to a debit card, and if you choose the right one, you won’t pay fees for debit usage, monthly maintenance or check cashing at all.
Consumers’ ire with Bank of America, Chase and the rest are understandable. But that shouldn’t sour you on the idea of keeping your money in a financial institution, especially one that has your best interests at heart.