Five Interesting Alternatives to Traditional Bank Accounts

It seems that every day we hear about one bank or another being either at the brink of failure or otherwise riddled with controversy. For years now, the ongoing topic of debate over the American economy has centered around the role of a few central banks with corporate management in the crosshairs of conspiracy theorists and legal analysts alike. If you’re an American reading this article, there’s a good chance you have at least one account with one of these institutions.

More recently, banks have come under fire for charging more and more fees for everyday tasks that many would consider to be complementary. Withdrawing funds using an ATM card, purchasing something with your debit card, and even transferring funds from one account to another are processes everyday people go through on a daily basis. Some banks have slowly adopted small fees for these minor processes which can eventually add up to a significant amount of cash over a relatively short period of time.

Just this past year, it was revealed that Bank of America was intending to impose a $5 monthly fee to customers wishing to use a debit card. This decision was later reversed after outrage from customers over the fee became a focus of the media. An online petition yielded over 300,000 signatures demanding that Bank of America reverse its decision. Chase and Wells Fargo have reportedly also backed off from any plans to charge a monthly fee for debit card usage.

So, what are your alternatives? How do you avoid a traditional checking/savings account that could be subject to a wide range of fees? Here are some ideas.

Credit Unions

Credit unions are very much like a bank, with some extremely important differences. For one, credit unions are owned by the customers and not by a for-profit company. Many credit unions offer the same range of services from standard checking and savings accounts to short and long term loans. What makes them different is that they typically have some added benefits to the user.

For example, each member of a credit union is often given some voting powers when it comes to decisions made that impact the customers. Being able to help decide on any major changes makes it far less likely that new fees and other undesirables would be imposed. Add to that the fact that credit unions are often formed around a common interest between members, and you’ve got a financial institution that is better suited to meet your needs.

Credit unions have their own downsides. For example, they tend to be smaller institutions meaning that certain luxuries such as ATMs and offices may be harder to find outside of their core service area. This may result in fees charged by other banks that support ATMs in a given area.

Cash Management Account

For those of you that still prefer a larger institution, but don’t want a traditional checking or savings account, you might consider a cash management account. These accounts are sort of a hybrid between a standard checking account and a brokerage account.

One of the benefits of this type of account is that it typically comes with interest even if you don’t actively participate in purchasing bonds, stocks, and other commodities. Account holders are generally issued checks in addition to a debit card that can be used just like any other standard checking account as long as a balance remains.

The downside of these account is that banks tend to require a higher starting deposit than they would with a standard checking/savings account. This is a viable option for folks that just want access to their accrued wealth while enjoying the freedom of managing investments.

PayPal

PayPal is a favorite among the Internet savvy. As a payment gateway, PayPal serves a wide range of clientele ranging from eBay sellers and freelance writers to large companies.

As a banking alternative, PayPal may not be your first choice for building a long-term savings, but it does offer users a debit card that can be used to make purchases for everyday goods and services just as you would from a standard bank. In addition, this card also gives you immediate access to your money as opposed to the 2-5 day waiting period for an account-to-account withdrawal.

I’m a PayPal user, as are most of the folks here at LockerGnome. PayPal is a pretty reliable service that does exactly what it’s advertised to do. The folks at PayPal guarantee transactions for you along with a standard level of fraud protection. I’ve recently had an issue with iTunes that resulted in having to file a claim through PayPal. The claim was not only resolved quickly, but every dime of money that was taken was returned.

The downside of PayPal is that it isn’t technically a bank at all. PayPal reserves the right to freeze your funds and lock your account for 90 days. There are some reports online about this happening, though I haven’t personally known anyone that has ever been hit with this issue.

Precious Metals

There is one form of currency that has held its value for the past 6,000 years. Gold, silver, and platinum are some of the most common hard-currency investments you can make. Buying an ounce of .999 fine silver means that you can sell it at or above spot (the current value of the metal against the currency) later on.

Gold especially is one of those precious metal investments that tends to climb against the dollar as inflation and other factors sets in. Over the past ten years, the price of an ounce of gold has risen from roughly $300/ounce to roughly $1,700/ounce. The idea investors have in mind when getting in to precious metals is generally to have some form of wealth that could survive past a collapse of the dollar.

Consider this, the US dollar was backed by precious metals until moving off the gold standard on June 5, 1933. At that point, US currency went from being backed by gold in the treasury to a trust. The trade of gold bullion was banned in the US for decades until the 1970s when Nixon announced that the US would no longer convert gold into dollars at a fixed rate. Gerald Ford allowed the free trade of gold among citizens in 1974.

Today, gold and silver are seen as long-term investments. Whether or not that investment pays off with the sudden increase in the price per ounce remains to be seen.

Your Mattress

Perhaps one of the oldest form of bank out there is the very mattress you sleep on every night. Hiding your cash, coins, and valuables away where only you can find them is certainly an option to you. It’s been estimated that roughly 17 million Americans lived without a bank account in 2009, and that number may have grown since then.

For these individuals, there are other options out there. Buying and selling goods, getting a loan against a possession, or simply spending wisely can allow you to live completely free of a bank or other financial institution. You could also buy and recharge pre-paid credit cards using cash, giving you roughly the same freedom you might have with a standard account using a debit card. Keep in mind though, that it isn’t the same thing and some restrictions may apply.

This does come with a few downsides. Credit is harder to come by if you don’t have any form of a bank account. Paying your bills may require a little footwork to and from your local grocery store and/or post office. If you run out of money, certain services many banks offer including direct deposit advance are not available to you, making you dependent on third-party companies that cash checks or pawn items for short-term loans.

Still, it’s up to you to decide what works best for you. My personal savings portfolio consists of a mixture of a standard savings account and precious metals. What works for me may not work for you at all, though knowledge of what options are available is certainly not a bad thing.

Do you use standard checking and/or savings accounts? Have you tried any of these (or other) alternatives? What works for you?

23 comments On Five Interesting Alternatives to Traditional Bank Accounts

  • Don’t EVER suggest PayPal, everyone knows it’s a scam that uses any excuse in the book to hold you to ransom… In other news, PayPal profits are up 20%, I’m sure my interest is being added to their dodgy revenue streams.

  • Don’t EVER suggest PayPal, everyone knows it’s a scam that uses any excuse in the book to hold you to ransom… In other news, PayPal profits are up 20%, I’m sure my interest is being added to their dodgy revenue streams.

  • I would never use paypal. Who knows when they want to suspend your account. I heard a lot of my friend’s paypal get suspended for no reason at all…They lost a good deal of money because of them. I would stay away from paypal. 

  • We wrote another article on the matter…

  • We wrote another article on the matter…

  • I did dedicate a paragraph of this article to that very situation, though I wouldn’t call a company a scam unless you have some legal backing to say so. I’ve worked with PayPal on a real fraud issue and they’ve never let me down. I doubt the folks over at PayPal would be in business very long (much less the primary transaction medium of two of the Web’s largest merchant sites) if it was just a scam.

  • I did dedicate a paragraph of this article to that very situation, though I wouldn’t call a company a scam unless you have some legal backing to say so. I’ve worked with PayPal on a real fraud issue and they’ve never let me down. I doubt the folks over at PayPal would be in business very long (much less the primary transaction medium of two of the Web’s largest merchant sites) if it was just a scam.

  • That I can appreciate. Sorry to hear about the situation your friends had with them. Thanks for sharing.

  • Hi Matt, I also would not recommend Paypal. Lets call a Pot a Pot and use it as a Pot. Paypal is trying to play two things while staying in the middle. On one hand they want to be a financial organisation on the other hand they do not want to be governed by financial organisation legislations. You only need to go through PP’s terms and it will not take you long to realise what I’m saying. I am not saying PP is bad, I just WILL NOT recommend them. I won’t share my personal experience here on a Public discussion but I will tell you this, it involved a lot of solicitors and hard case court battle.
    Samuel

    • Thanks for sharing. Again, writing this piece wasn’t intended to make recommendations so much as share what many Americans are using as an alternative. I wouldn’t recommend PayPal for anything more than your disposable account for online purchases, though I can understand why many would recommend not using them entirely.

      PayPal is how I get my rent paid, so believe me when I say that I want more than anyone for it to be a good reliable service for as many people as possible. Thanks again.

  • Hi Matt, I also would not recommend Paypal. Lets call a Pot a Pot and use it as a Pot. Paypal is trying to play two things while staying in the middle. On one hand they want to be a financial organisation on the other hand they do not want to be governed by financial organisation legislations. You only need to go through PP’s terms and it will not take you long to realise what I’m saying. I am not saying PP is bad, I just WILL NOT recommend them. I won’t share my personal experience here on a Public discussion but I will tell you this, it involved a lot of solicitors and hard case court battle.
    Samuel

  • Sometimes it’s impossible to avoid dealing with PayPal. If you sell on eBay (as I do), that’s really your only choice. I just choose not to leave too much in there at any given time in case they decide to get crazy and freeze my account! My biggest complaint about PayPal and EBay is that they tend to side with the buyer a lot more than the seller even when it’s clearly the buyer trying to scam me.

  • Sometimes it’s impossible to avoid dealing with PayPal. If you sell on eBay (as I do), that’s really your only choice. I just choose not to leave too much in there at any given time in case they decide to get crazy and freeze my account! My biggest complaint about PayPal and EBay is that they tend to side with the buyer a lot more than the seller even when it’s clearly the buyer trying to scam me.

  • Paypal??? You have got to be kidding me.

  • While I don’t have a specific problem with these alternatives, only the general idea of them, I agree with only suggestion one and suggestion two.  

    As with others in this comment thread, PayPal is a slightly humorous suggestion as a means to manage your money.  

    While precious medals are not pieces of paper and are one of the only forms of universal currency, it is not a safe alternative to traditional means of saving and spending money.  Precious medals are great investments, but one should not receive their paycheck value in gold, silver, etc. they should act as a supplement to your current investments.

    As with precious medals, hiding your cash and other valuables where you alone have access to them is fine, but don’t put all your eggs in one basket.  Keeping an emergency $5,000 worth of cash, jewels, precious medals, or collectibles in a safe is a good idea for emergency situations only.  

    Why should you not get rid of your traditional bank account or credit union?  FDIC, and NCUSIF.  These acronyms stand for the insurance on the money in those funds should the bank or credit union go out of business.  

    What are some additional means of saving your money?  
    -Real Estate, nobody is making land anymore.  Owning a plot of land off the Vegas Strip may turn into a valuable investment if a casino wants to build on it in the future.  The other thing about land, there is little risk in your lifetime that said land will disappear.  Nobody can steal it from you without a long court battle.
    -Retirement, plan for your retirement early.  If you have some extra money around, begin preparing for your retirement.  Are you 20, 30, 40 years old?  It is never too early to start building your nest egg.  With the average retirement age increasing, someone in their early 20’s has a good chance, with the proper investments, growing their money for nearly 50 years!
    -Foreign Currency, one investment that can have profound impacts on the value of your portfolio.  With a little thought and research you can successfully trade currencies around the world.

    My final point is this, if you have money lying around.  Don’t let it sit there, put it to work for you.   If you have a sizable amount, find a Certified Financial Planner in your area (I am not one of these), and see what options are available to you.  There are people out there, making money off of their money.  They aren’t doing a darn thing.  So before you think that Ferrari is unattainable, ask yourself how you can let your money, make you money.  

    Here is a link to find a Certified Financial Planner in your area: http://www.cfp.net/find/EnhancedSearch.aspx

  • I’ve been using Greendot for years now.  They do have a monthly fee, but it’s like $5.  It’s a “prepaid” sort of debit card, so there’s no risk of getting overdraft fees.  There are drawbacks, such as no checks and no routing number for automatic withdrawals, no accrued interest and a fee for adding cash to it, but since my main use is for shopping and direct deposit of my paycheck, it works fine.  That, in combination with Paypal, and I’m pretty much set.

  • I’ve been using Greendot for years now.  They do have a monthly fee, but it’s like $5.  It’s a “prepaid” sort of debit card, so there’s no risk of getting overdraft fees.  There are drawbacks, such as no checks and no routing number for automatic withdrawals, no accrued interest and a fee for adding cash to it, but since my main use is for shopping and direct deposit of my paycheck, it works fine.  That, in combination with Paypal, and I’m pretty much set.

  • Unless something has changed, Paypal uses BOA so be careful with that one.

  • Frederickrmarch

    This is all good info one day when I have money I will reread this 🙂

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