Overcoming the ‘fear of fees’ with Alternatives to Traditional Banks

savings account

Molly Podlesny recently went through a breakup.

The 24-year-old law student in Phoenix didn’t have her heart broken; it was her wallet that was damaged. After getting charged for not meeting the minimum balance requirement of her Chase checking account, she opted to part ways with the institution.

As a student, Podlesny struggled to maintain the checking monthly minimum balance of $1,500, Every time her account dipped below the requirement during the month, she was charged $12. She asked the bank to remove the fee but was unsuccessful.

“When there’s the fear of the fee and you have to leave a certain amount in, it’s inconvenient and caused me to pull from my savings more even while I had a balance in the checking,” Podlesny says. “It doesn’t feel right to me.”

Why So Many Avoid Banks

Most consumers keep their cash in a traditional banking product, like a checking or savings account. But keeping money in a bank can be expensive, especially if your income is low or it varies.

A 2018 Bankrate study found the most common minimum balance to avoid fees on a non-interest checking account was $1,500. Additionally, consumers face hefty overdraft fees, which hit an average of $33.23 per incident last year.

For lower-income households, the requirements that banks put on their customers are often just too high. As a result, many low-income Americans who are unbanked, or who don’t have accounts at an insured institution, rely on expensive or less-safe alternatives — and face disadvantages when it comes to building wealth.

In total, 1 out of 4 U.S. households face some type of challenge when accessing the banking industry.

Approximately 8.4 million U.S. households, or 6.5 percent of total households, were unbanked, according to the FDIC’s Survey of Unbanked and Underbanked Households in 2017. An additional 18.7 percent of households were underbanked, meaning they had an account at a bank but also used services outside of the banking system, like money orders or expensive payday loans.

The survey reported that more than half of unbanked households cited not having enough money to meet the required minimums as a factor in not having an account.

In 2015, Americans spent as much as $141 billion in fees and interest on alternative financial services, such as payday loans, to manage their financial lives, according to the Center for Financial Services Innovation.