(Corrects Citibank's fee in the fourth paragraph.)
Something is wrong when keeping cash in the kitchen cookie jar seems a reasonable substitute for your bank. It may feel rebellious -- your own little Occupy Wall Street act of defiance -- and even a bit savvy, given those checking-account fees, ATM fees, and monthly debit-account fees. That little depository institution atop your kitchen counter has big drawbacks, however, including a lack of federal deposit insurance, zero interest, and ease of access that could prove dangerous to your financial health.
There is a way to fire up both your rebellious spirit and your savings. On Nov. 5 -- the day Occupy Wall Street has already targeted for supporters to leave banks en masse -- consider one of the nation's 7,000-plus credit unions. Thanks to their structure as not-for-profits, they are typically fee-friendlier than banks, and becoming a member is usually much easier than you may think.
Consumers are taking notice. The Navy Federal Credit Union, the nation’s largest, says it is on pace to see a 23% increase in checking accounts this year, compared to more typical annual growth rate of about 7%. “The past few months have been the highest in terms of new account openings we’ve ever seen,” says NFCU spokesperson Aisha Rasul. Rethinking Debit Fees
Banks don't want to see customers march out the door. Some are rethinking plans for monthly debit-card fees and even offering free checking. It's getting tougher, though, to qualify for such perks.The percentage of banks offering free checking has fallen from 76 percent two years ago to 45 percent, and the average monthly fee is $14. (You can often circumvent such fees if you have a mortgage or other business at the bank.) The typical balance to get that fee waived is $5,587, compared to less than $4,000 a year ago. For those with monthly balances below $1,500 in a basic checking account -- or a basic checking account linked to a basic savings account -- Citbank plans to charge $10 per month starting in December. Consumers can have the fee waived if they have monthly direct deposit and pay at least one bill online each month.
Among large credit unions, meanwhile, three out of four institutions surveyed by Bankrate.com offer free checking. An additional 20 percent waive the fee if you sign up for monthly direct deposit or meet some other requirement, such as a minimum balance. Credit union minimum balances for free checking are typically $500 or less. Pat Keefe, spokesman for the Credit Union National Association, adds that about 90 percent of credit unions don't impose debit-card fees.
Credit unions have other charms that can make you feel like a privileged client. Ken Tumin runs the Depositaccounts.com website, which has a searchable database of bank and credit union account offerings. He says many offer reward checking accounts: With a low minimum balance, you can earn a competitive interest rate if you agree to frequently use your debit card or have a monthly direct deposit into the account. A half-dozen credit unions in the database pay at least 2 percent on reward checking account balances, up to the first $15,000 or so. Better Rates
You can typically find better rates on CDs at credit unions. In mid-October, the average yield on a $10,000 one-year CD was 0.60 percent at credit unions and 0.46 percent at banks, according to Informa Research Services. At Depositaccounts.com, the two highest-yielding one-year CDs -- among both credit unions and banks -- were Digital Credit Union’s 1.25 percent deal and Alliant Credit Union’s 1.20 percent offering.
Consumer loan rates may also be more attractive. At a credit union, a five-year loan for a new car has an average interest rate of 3.6 percent, compared to 5 percent at a bank, according to Informa. Mortgages rates are a toss-up, but credit unions are the way to go if you ever find yourself needing to run a credit-card balance. A Pew Research survey reports that the median initial interest rate for bank credit cards is 12.99 percent, compared to 9.99 percent for credit union credit cards. If you end up getting hit with a penalty on your card, the median interest rate gets bumped up as high as 29.99 percent, compared to 17.99 percent at a credit union.
Given the benefits, why isn't everyone switching? One reason is drudgery; moving accounts isn't easy, especially if you have direct deposit or use the bank's bill pay service. “The big banks are betting that the time and hassle of making the move will keep you right where you’re at,” says Ed Mierzwinski, director of consumer programs at U.S. PIRG, a non-profit advocacy group.
If you are among those who are just too busy to switch, Norma Garcia, senior attorney at Consumers Union, recommends checking with your current financial institution to see if there’s any way to keep your fees low. Just the fact that you're asking about fees may get your bank to improve its deal. If they don't budge, then it may be time to shop around. Credit Union Shopping Tips
Ask friends and family if they belong to a credit union. To join, you often need nothing more than a family member or friend that belongs to one. You can search for credit unions in your region at asmarterchoice.org, the website run by the industry’s trade association, and at Bankrate.com or Depositaccounts.com. You may have to pay a one-time fee of $5 to $10 to join a credit union.
Be alert for special deals. Alliant Credit Union, which Tumin calls out for its competitive rates, accepts anyone who is a member of a local PTA. The Pentagon Federal Credit Union (PenFed), known for its competitive credit card and car loan rates, lets you join if you donate blood or money to the American Red Cross.
Look for an NCUA logo on the website or front door of a brick-and-mortar outpost. The National Credit Union Administration offers the same insurance limits as banks that are part of the FDIC program.
Make sure a credit union provides services you value. Most credit unions belong to nationwide networks that give free access to thousands of ATMS. CUNA’s Keefe notes that 95 percent of credit unions with at least $20 million — yes million, not billion -- in deposits offer online banking. A recent CUNA survey shows that just 45 percent offer mobile banking.
Consumer’s Union has a seven-step plan for making a successful switch. One important move: Leave your old account open for up to 60 days to make sure all checks have cleared. “If you end up with a bounced check, it can become a black mark on your banking record,” notes Mierzwinski. “That can make it hard the next time you want to open a new bank account” -- if you ever do.
(Carla Fried is a freelance writer based in California.)