NEW YORK (
) -- Tired of getting a raw deal at your too-big-to-fail bank? Go ahead and quit your bank cold turkey this thanksgiving and start shopping for alternatives.
The success of Bank Transfer Day earlier this month that drove thousands of customers to close their bank accounts and sign on to credit unions shows how frustrated main street is with traditional banking options.
While consumer backlash and the Occupy Wall Street rhetoric have caused large banks to withdraw their controversial debit card fees, most analysts and market experts expect banks to introduce fees in some subtle form or the other as they look to make up lost revenue.
Bank of America
PNC Financial Services
among the banks that are most affected by regulations that limit the fees charged to merchants for processing debit card transactions.
So expect to pay a fee now for things that were free previously, unless you carry a big balance and are considered "profitable" by your bank.
Whether you are looking for personal customer service, a lender that puts customers first over shareholders or one that looks beyond just the balance sheet and puts faith in your character, there are plenty of alternatives.
Here are five alternatives to your traditional bank.
Credit Unions have shot up in popularity in recent months and have capitalized on the anti-bank sentiment that has gripped consumers sick of a barrage of fees.
According to the Credit Union National Association, 650,000 consumers joined credit unions across the nation since Sept. 29, the day Bank of America unveiled its unpopular $5 monthly debit card fee. On Bank Transfer Day on Nov.5, the association estimates 40,000 consumers joined credit unions. More than 60% of the credit unions who signed up new customers said they also made new loans on that day.
So what makes credit unions such a universal favorite? The fact that these are not-for-profit institutions that serves members of the credit union rather than shareholders.
Credit unions, like banks, lend money and accept deposits but only to members. There are various eligibility requirements that vary from one credit union to the other, but once you are a member, you get a vote in how the business is run. Since credit unions serve their members, there is no conflict of interest, unlike banks that tend to put shareholder returns first.
Credit unions function like smaller, locally run banks and promise better and more personal customer service. The disadvantage is that they may not offer the variety and sophistication of products that big banks do.
Also, credit unions are not unaffected by the changing regulatory landscape. In fact, the Credit Union National Association has said it is concerned about the debit-interchange regulations that have hit the big banks.
"We are keeping a close eye on the card networks. Credit unions are doing whatever they can to hold the line on new fees - for them, raising fees is a last resort not a first resort," the organization said in a statement in October.
Microfinance refers to providers of financial services to low-income families or those who are typically underserved by the traditional banking system.
The most famous example of microfinance is Bangladesh's Grameen Bank, founded by Muhammad Yunus in the seventies, who won the Nobel Peace Prize in 2006 for his initiative. But this form of lending to the poor has been growing in developed nations in the west as well.
The interest rates charged by microlenders is high, because they cost of making a loan to an underbanked customer is higher, one reason why banks don't operate in remote locations or serve poor communities. Moreover the loans are often made without collateral.
In the U.S.,
Accion USA offers business loans upto $50,000 to small business owners who cannot borrow from the bank due to business type or insufficient credit history.
Kiva , a non-profit organization, connects entrepreneurs with lenders. Lenders may contribute as little as $25 and 100% of the loan goes to needy borrowers. The organization says the loans have a 98.93% repayment rate, despite the focus on low-income individuals.
Islamic or Sharia banking is expected to climb 33% from their 2010 levels to top $1.1 trillion in assets by end of 2012, according to a new Ernst & Young
Islamic banking is banking that is compliant with Sharia law that forbids earning interest in any transactions. In Islamic finance models, banks share the risk and profits with their customers.
So a bank might buy a house on your behalf and lease it out to you over a period of time, at the end of which you become the owner. Or the bank will manage your investments for you but will not charge a fee unless it turns a profit.
Lenders also do not invest in prohibited businesses such as alcohol, gambling or pornography.
The banking model which prevents excessive leverage was also hailed during the financial crisis.
Islamic banking is growing at a rapid pace in Muslim nations and conventional banks have tried to adapt their business models to Sharia law in the Muslim world. These banks are also reaching out to non-muslims.
Islamic banks might benefit from recent events such as the Arab Spring, the Eurozone crisis and the occupy wall street protests, Ashar Nizam, Islamic Financial Services Leader ay Ernst & Young said in a recent conference, according to a
Brokerage firms like
offer checking and savings accounts that are linked to your brokerage accounts.
There are no monthly fees or minimum balances and the deposits are insured by the FDIC up to $250,000 in the case of Schwab and $500,000 in the case of Fidelity.
ATM or debit cards attract no fees either. The interest earned on cash balances vary according to market rates and are typically lower than what you would earn on high-yield savings account with banks, though that isn't much right now either.
You might also be able to secure a line of credit or margin account.
There's always good-old Mom and Dad or your rich Uncle. Borrowing money from family might make you uneasy, but it doesn't have to be interest free.
You could probably get away with paying a much lower interest rate on a loan from a family member. And they might not mind lending you the money, considering that their savings accounts are practically earning nothing.
Your family is less likely to look at your credit history and might actually place their faith on your enterprise, while banks are likely to just focus on your balance sheet. Credit terms are also likely to be more flexible.
And if you dislike owing money to a family member, it might make you more disciplined in paying off your debt.
--Written by Shanthi Bharatwaj in New York
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