The recent passage of a new law limiting the amount of money banks can charge in fees to merchants is having effects throughout the financial industry. For the average consumer, the law’s effect seems to be that it is going to cost more to have a checking account. Fortunately, there are ways to still find free or low cost checking accounts.
The new banking regulation law imposed several limits on the amount of money the banks can charge merchants when customers use their credit and debit cards to make a purchase. Prior to the passage of the law merchants could pay up to $3 or more for small transactions. The new law limits the fees to less than fifty cents per transaction. This, obviously, is a big cut to the revenue that banks were getting from these fees.
In order to make up for this lost revenue, many banks starting announcing this week that they would instead charge customers more for their checking accounts and debit cards. The new proposed fees are in some cases twice as high as the old ones. For consumers who are recovering from a recent recession, this could represent a major change in their budget.
Fortunately, there are other alternatives than using the big, multiple-national banks that are raising their fees. Many consumers are already switching their accounts over to smaller banks and credit unions that do not charge for their checking and savings accounts.
Credit unions got their start years ago as groups of people got together in lending clubs. These people would pool their money together and offer low interest loans to their members. Often, these clubs would provide their members better investment returns than their local banks, and people looking for a loan could find better interest rates and in some cases even qualify for a loan they wouldn’t otherwise be able to get. As these clubs grew, it became necessary for them to adopt more formal structures, and many of them seat themselves up in a manner that was similar to banks. Today, most credit unions offer the same or similar services that many banks do, but they do not make a profit.
Because of their non-profit status, Credit unions can choose who they want to accept and disqualify from membership. Therefore, some credit unions will limit their membership to people who work in a certain industry such as auto workers, military members, or teachers. Other credit unions open their membership only to people who live within a certain geographical area. Still, other credit unions have no limits on who is allowed to join.
More importantly, because credit unions cannot make a profit, they have no motivation to raise fees unless the cost of the services really does increase. This means that many credit unions have not increased the cost of their services on checking accounts on years. In fact, some have lowered their fees because improving technology has lowered the cost to provide these services.
Furthermore, credit unions have the same services that banks do. It is possible to get an ATM card that will be accepted practically everywhere along with account management tools such as online banking. Credit unions usually have their own network of ATMs in the area they serve, and some credit unions offer to reimburse their members if they have to use an out of network ATM. According to recent surveys, customers of credit unions are happier with the customer service they get than customers of large, for-profit banks.
The services and prices offered by credit unions make them excellent options for anyone who needs to save money on their banking services. Check with your local credit union to see if moving your accounts is a good option for you.