Earlier this year, my credit union announced they’d start charging a new $35/year fee on a $10,000 deposit. But they offered me a deal: they’d waive the fee if I agreed to deposit an additional $23,000. Boy, was I mad!

Actually, I didn’t even notice at the time, and I’m embellishing the story. The credit union didn’t hit me with a new fee. They lowered their interest rate on savings accounts from 0.5% to 0.15%. If they had kept the interest rate at 0.5% and announced a $3/month fee, I would have joined an angry Facebook campaign (“We are the 0.5%!”), even though it would have amounted to the same thing.

What do we want from our banks, anyway?

He’s no Brad Pitt, but he’s mine

Remember the mid-2000s, when shopping for bank deals was fun? I had an online savings account paying 5.2%, and a CD paying more than that. (And why didn’t I spring for the 5-year CD? If you’re in the happy twilight years of a high-interest CD, I don’t want to hear about it.)

Now, the experience is Blade Runner-esque. We scavenge the junkyard for a tiny fraction of a percentage point. You almost have to feel sorry for the banks. When INGDirect lowered the rate on its Orange Savings account from 1.0% to 0.9%, it earned a headline in the New York Times.

The best rates on deposits are usually on reward checking accounts (often called Kasasa accounts; kudos to whoever came up with this unthreatening, sorta-ethnic name). Offered by credit unions and community banks, Reward Checking accounts pay high interest (well, 2% and up) as long as you use your debit card a lot and sign up for direct deposit, e-statements, and (usually) online bill pay.

The problem with reward checking is that banks use it to bring in new deposits, and once they’ve got you - once you’ve connected your checking account to everything else in your financial life - they can lower the rate and figure you’re too deeply embedded to switch.

That said, plenty of people have excellent luck with reward checking. My friend Karawynn Long of the blog Pocketmint recently wrote about her reward checking account, which pays 4.09% on balances up to $10,000. The rate is guaranteed through June 2012. That’s a great deal. I couldn’t help but notice, however, that she’s changed banks since last year.

Me? I’m too lazy to play this game. At this point, I think it’s fair to say that what most bank customers want is predictability. We’re willing to lower our standards and settle for a bank that lies around on the couch all day watching football as long as it doesn’t actually get drunk and threaten to hit us with a $5 debit fee.

Say you’re ready to close your account at Mega-Conglomerate International Bailout Bank and Trust. You know moving your money is going to be a chore and don’t want to have to do it every year. Are there any banks willing to put themselves on the line and promise to be the shlumpy, reliable guy who doesn’t pay the very best interest rate but won’t surprise us with a stupid new surcharge?

The good guys

Everbank offers a line of Yield Pledge accounts. The most interesting is Yield Pledge checking, an interest-bearing checking account with no minimum balance, no fees, and a promise to stay in the top 5% of rates nationwide. Right now, it’s paying 0.46% on balances under $10,000.

“Can somebody else run a special and have a higher rate? Sure,” says Frank Trotter, president of Everbank Direct. “It’s kind of like Southwest Airlines. They’re not the best rate in the market every day, but you know you’re going to get a fair deal every time. And you feel that the other airlines will try to take advantage of you when they can.”

I spoke with Bankrate.com senior analyst Greg McBride, who is probably the world’s foremost expert on checking and savings accounts (no, really). Is the yield pledge just a gimmick? “Having a pledge is better than you’re going to get on other accounts,” says McBride.

A different kind of promise comes from Bethpage Federal Credit Union, which guarantees no transaction fees, debit fees, or monthly maintenance fees for the life of your checking account. I like the idea, but it’s a little unnerving when you follow the asterisk down to the footnote that says “Offer subject to change.” Baby, I promise to love you until I die. Or change my mind. Whichever comes first.

Actually, almost no credit unions, community banks, or online banks charge these kinds of fees. I ask Greg McBride whether, given how hard it is out there for a bank, this is likely to change.

Probably not, he says. “Credit unions are not-for-profit cooperatives. The other levers they can pull before instituting fees are reducing interest rates, eliminating products or services, or eliminating interest on the checking account altogether.” Indeed, my credit union checking account pays 0.1%. At that rate, my money will double in just 694 years!

As for community and online banks, they’re generally exempt from new debit swipe fee regulations and have built their reputations on customer service—on not being like the big banks.

PerkStreet Bank doesn’t pay interest, but they do offer 2% cash back on signature debit purchases. Most of their competitors dropped their debit reward programs months ago, but PerkStreet is still at it. If and when they have to lower their cash back rate, it’s going to be a PR disaster, but it hasn’t happened yet.

Finally, last year I opened a checking account with Schwab, and I’ve been delighted with it. It is the epitome of boring: the interest rate is low (0.2%), but they don’t charge fees for anything: no minimum balance, no monthly fee, no fee for using anyATM in the world, and no international fees. The only problem I’ve had with Schwab is that they are bulldogs about international fraud prevention: I took my ATM card to a scary foreign country this year and had to call the bank twice to convince them that I was really me, not the kingpin of an international card number-running mafia. The country was Canada.

Other than that, for most of my savings and checking needs, I’m sticking with my credit union, no matter how low their interest rates go. (For longer-term cash savings, I use CDs and savings bonds. I mean, I’m not totally nuts.)

It may not be entirely rational, but are relationships ever rational, really?

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

In the face of mounting pressure from consumer advocates, customers, legislators, and an angry media, five megabanks have all of a sudden decided that charging people for access to their own money wasn’t such a good idea, after all. The moves by Wells Fargo, Chase, SunTrust, Regions and Bank of America to cancel plans to charge debit card users monthly fees is a clear victory for their customers. However, before you chalk one up for the vocal majorit,y you might want to keep your eyes on your mailbox for announcements of future fees.

It’s unlikely that the mega-banks are simply going to give up efforts to increase their fee-based income. Keep in mind why these same companies - only one week ago - were steaming full- speed ahead with their plans to charge fees for debit card usage. The root cause for the new fees was the cap on debit card swipe income, which is still in place.

Nothing has changed relative to the income they’re going to lose by not being able to charge more than $.21 for a debit card swipe. What has changed is how they’re likely going to get it from us. 

What Comes Next

The banks clearly underestimated how consumers were going to react when they found out they were going to get charged for access to their own money. I’m still not sure how that happened considering there are thousands of people camping out this very evening in cities all over the country protesting, among other things, how big banks treat customers. Do they not know that debit card users LOVE their debit cards? I used the word LOVE, people. 

The banks will likely take advantage of this little diversion. They’ve lost this battle but they will not lose the war. An increase in fees (one that’s less offensive) is likely to occur. This will probably include some blending of increased late fees, ATM fees, foreign transaction fees, or some other fee that we’re less likely to notice. 

This move by the banks is little more than a stay of execution. What it does do for consumers is buy them time to move their business from one bank to another, without the pressure of impending fees.  Moving a checking account is a royal pain. I know, because I just went through the process myself.

If you’re one of the many consumers who feel like this was the straw that broke the camel’s back, then you should open a new checking account with either a credit union or a bank that does not charge you excessive fees.  Stick a few bucks in the account, order your debit card and paper checks, if you’re still using them. Then, start the process of moving your direct deposit to the new account and converting any auto-debit merchants to the new account.  Once you’re done, you can claim victory a second time for forgiving…but not forgetting what happened over the past month.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.

This new fee frenzy for debit card users isn’t the first significant change to consumers’ debit card accounts. Many banks have cut back on their debit card rewards programs or eliminated them entirely. The cost to subsidize such programs was no longer acceptable in their eyes.

Bank fees certainly aren’t new, nor are they unexpected. The real question is: Why so many - and why now?  The answer will vary depending on whom you ask. Some consumer advocates argue that bank fees are charged for the sole purpose of juicing a captive customer, one who is either unwilling or unable to go through the hassle of moving their accounts to another bank  (who might start charging them a new fee soon thereafter, anyhow).

If you listen to representatives from the banking industry, though, they’ll tell a very different story. Their story is one of excessive regulations over their revenue generating practices, such that they have no choice but subsidize their legislative compliance costs by imposing higher fees on customers.

According to Jamie Dimon, the CEO of JP Morgan Chase, “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.” So, what regulations have emerged in the past few years that are acting as an incentive for banks to charge us more fees? Well, in all fairness to the banks, the list is long:

1.  No more over limit fees for credit card use. The exception is if the cardholder gives the bank permission to charge them the fee, normally $35.

2.  No more overdraft protection fees. The exception is if the customer “opts in” and allows the bank to charge them the fee, normally $35-$39.

3.  Debit card interchange fees (“swipe” fees) capped at $0.21.  This fee used to be on average $0.44 per transaction and was paid by merchants, not consumers. This one still befuddles me, as consumers and consumer advocates were NOT asking for this “protection.” Have you noticed a 21 cent reduction on the things you purchase with a debit card? If not, then your merchants aren’t passing the benefits of the lower margin down to you.

It’s this last one that is pushing big banks to charge you for debit card usage. They don’t make as much from the merchant swipe fee any longer, so they’d rather you use a credit card issued by the same bank. Credit card swipe fees were not capped, so they still do very well on these merchant fees.   

How To Avoid Bank Fees

Other than interest, the most expensive bank fees are punitive, such as fees for paying your credit card bill late or overdrafting your checking account. These fees are easily escaped by simply avoiding these actions.

The problem is that fees are rapidly creeping into the lives of even “well-behaved” customers, making them harder to avoid. However, there are ways to avoid even what appear to be justifiable fees:

Credit Unions – There are over 10,000 credit unions with about 76 million customers, so they’re not a secret (although my students at the University of Georgia looked at me like I was making stuff up when I started talking about credit unions two weeks ago).  And while credit unions do require that you be a part of some of unique population (state employees, federal employees, teachers, other employer groups, etc.), there are simply so many that chances are you’ll qualify for membership with at least one. 

Credit unions pride themselves on providing top-notch service to their customers (“members”).  Most offer similar services to the mega-banks, and do so with more competitive rates and fees.  And yes, your deposits are insured up to $250,000 by the National Credit Union Administration, just as the FDIC insures most bank deposits. 

Customer-Friendly Local, Regional or National Banks – When we get mad at banks, we tend to focus on the largest 10-15 (primarily because most of us are doing business with at least one, if not more, of them).  But, there are also thousands of smaller, local, and regional banks that are much less likely to charge excessive fees than the big boys.  And, there are even some large national banks that pretty much avoid the fee game.  Check out USAA Federal Savings Bank’s fees, for example — if you can find any.

Online Banks – When there aren’t any buildings to pay for, the cost of doing business goes down. It’s that simple. Having said that, doing business with a bank that doesn’t actually exist in the physical world is a leap of faith for many. The good news is that most of them are FDIC insured so your dough is protected (up to $250,000).

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.

photo:  DucDigital 

Earlier this month I got a letter from Chase. Even though it was a plump envelope like a college acceptance, I knew it contained the news I’d been dreading ever since Chase took over Washington Mutual in 2008: my free checking account would no longer be free.

This is my daily spending account. It doesn’t receive a large direct deposit or run a high average balance, either of which would have been enough for Chase to waive the fee. So I went shopping for a new bank. Here are some options I considered, and what I ended up choosing.

My bias is for plain vanilla checking. I’d rather use a product with no fees, minimums, or requirements than one that pays more interest but makes me jump through hoops or hits me with unexpected charges. I’m looking for a hammer, not a Leatherman. (I don’t care about having a local branch.) That said, I did consider a couple of Swiss Army-style accounts, which I’ll describe below.

This year has been tough for bank revenues: changes to overdraft coverage, the CARDAct, and the upcoming regulation of debit card interchange fees are all hitting banks in the bottom line. That makes free checking harder to find, and any of the products I discuss could change their terms at any time. For now, however, these are some of the best.

Ally Bank

Ally has no minimum opening or ongoing balance, pays 0.5% interest, reimburses all ATM fees (but charges a currency exchange fee for foreign transactions), and charges $9 maximum per day for overdraft coverage. You get free paper checks, too.

Schwab Bank High Yield Investor Checking

The yield isn’t really so high (0.25%), and you have to open a brokerage account, but there’s no minimum balance for either the brokerage or the checking account. If you keep some money in the brokerage, however, it can be used to cover overdrafts at no charge. Free checks, unlimited free ATM withdrawals (and, uniquely, no currency exchange fee), and basically no fees for any normal thing you want to do.

My local credit union

The checking account at my credit union is pretty typical of credit union offerings: it pays a little bit of interest (0.25%), offers a line of credit or savings account transfer for overdraft coverage, gives you free paper checks, and charges to use out-of-network ATMs.

PerkStreet Bank

Now we’re veering into the fancy stuff. PerkStreet pays no interest, but its debit card offers reward points that can be used for iTunes, Amazon, and other retailers, or converted into a Visa prepaid debit card. It has a large ATM network, but you’re on the hook for out-of-network ATM fees. Since PerkStreet’s perks are funded by debit card interchange fees, it’s hard to see how they can remain so generous when those fees are cut in 2011.

Reward checking accounts

This is the generic name for a product offered by many small banks and credit unions. It offers high interest (3% and up) on a balance of up to $10,000 (up to $25,000 at some banks) if you jump through some flaming hoops. Typical requirements: at least 10 debit transactions per month; e-statements; direct deposit; use of online bill pay. This product is also endangered by the new debit regulations. To compare accounts, visit DepositAccounts.com or CheckingFinder.com.

I spoke to Bankrate’s Greg McBride about reward checking earlier this year, and he cautioned: “If you’re going to have to keep a running tally of how many debit card transactions you’ve done so you can make sure you clear that threshold every month, this probably isn’t going to work for you.” Adapting your lifestyle to the demands of your checking account is a hard way to live.

Incredible Bank

This bank’s website features a bodybuilding theme; I’m not sure whether this is reassuring. It pays 1.35% interest on any balance, low or high, but has a $1,000 minimum opening deposit. You have to take paperless statements, and you can’t write paper checks on this account at all, but the bank’s online bill pay can be used to send a check to anyone. Oh, and they’ll charge you $5 if you lose your debit card.

In the end, I went with Schwab. The product has been around for years, boringly offering a little interest and no fees for anything short of outright misbehavior. I like my banking boring. I also like to travel to Canada, and not paying that annoying foreign currency fee will warm my heart while I’m in the frozen north.

Now my only problem is that twinge of fear every time I get a fat envelope in the mail.

photo: edenpictures

Banks seem to have a bad reputation don’t they? They charge you for every type of service imaginable. Labeled as profit mongers who invent outrageous fees and give mediocre customer service, banks have not made a good impression on consumers. As a result, many of us end up looking for alternatives.

One option: a credit union.

What is a credit union?

Credit unions are not-for-profit cooperative financial institutions that are owned and controlled by their members. A credit union is democratically governed, each member has one vote, members elect the board of directors and the union is volunteer-based. Unlike a bank where customers are just that, customers – in a credit union, members are also owners.

The average cost to purchase a credit union share is $5 – $10 and typically just a few shares are required for you to open an account. (Those shares are then deposited in your savings account. If a credit union requires you to purchase at least five shares at $5 each to become a member, that means you need to make an initial $25 deposit that will then remain in your account as long as you are a member.)

The profits credit unions make are passed onto members in the form of dividends or lower fees. That is why credit unions typically offer higher rates on savings, lower fees and lower rates on loans than banks. They also offer online banking, ATM’s with no surcharge and overdraft protection, but credit unions offer financial education and counseling without giving potential customers a hard sell on their products.They focus more on service and less on profitability.

A little bit of history

According to the National Credit Union Administration, credit unions first appeared in Germany in the mid 1800’s in the form of financial cooperatives. German farmers, devastated by the crop failure and famine of 1846, decided to organize a cooperatively-owned mill and bakery that sold bread to its members at a discount.This idea developed into addressing the credit needs of farmers. In 1850, the first cooperative credit society, known as the “people’s bank” was initiated.

In the 1920’s credit unions became popular, especially with the working class. Commercial banks and savings institutions were not providing consumer credit, creating a growing interest in the affordable credit unions. Credit unions provided a much-needed source for inexpensive credit. Fast forward to today, credit unions have become increasingly popular throughout the United States. According to NCUA, currently there are about 7, 950 active federally insured credit unions with almost 90 million members and $679 billion in deposits.

Membership

One big difference between banks and credit unions is that while pretty much anyone could become a bank’s customer, you actually need to qualify for membership in a credit union. Credit unions use a variety of criteria to determine eligibility. Employers who sponsor their own credit unions allow employees to join, for example. If you are a member of a church group, school, labor union, or homeowners association, you might also be able to participate in a credit union. Credit unions also serve people who live in certain geographic locations.

Several credit unions are not exclusive at all. Consumers Credit Union (CCU) is open to everyone; it is one of the largest credit unions in Illinois. CCU offers checking accounts, debit and credit cards, vehicle loans, consumer loans, savings, money market accounts, certificates of deposit and mortgage products plus regular, jumbo and IRA plus vehicle loans.

Insurance

Banks have the FDIC to insure consumer’s deposits; Credit unions have the National Credit Union Share Insurance Fund. The National Credit Union Share Insurance Fund (NCUSIF), which is managed by NCUA, is a government-backed insurance fund. Deposits are insured by the NCUSIF up to $250,000 per depositor and backed by the full faith and credit of the United States Government.

Compare before you sign up

When comparing credit unions to banks, follow the steps below to find the institution that best fits your financial needs:

* Find out what products and services each institution offers. Generally, banks offer a more varied selection of financial products and services than credit unions.

* How important is customer service to you? Credit unions are often smaller, have less employees and less customers, so the customer service experience at a CU might be different than the one you get at a large bank with millions of customers and a call center overseas. At the same time, if having access to a branch in multiple locations is your priority, you may be better off at a large bank.

* Do you need to borrow? Loan rates tend to be lower at credit unions, so if you are in the market for a loan, a credit union loan might be your best bet.

* Find out how much interest you will gain on your savings account, or deposit accounts as some credit unions call them. Both banks and credit unions offer checking accounts, savings accounts and CD’s, though you could expect to find higher rates at credit unions.

* What fees and penalties, if any, can the credit union charge? How do these compare to the bank’s?

Still can’t decide? Don’t fret: you can have both. There’s nothing wrong with spreading yourself out to get the most for your money!

(Keith Williamson)

For many years, banks relied on overdraft fees and sudden interest rate hikes to pump up profits. But recent financial sector reforms have largely outlawed these practices. And while consumers are no doubt jumping for joy, the banks are not quietly accepting the loss of billions of dollars in annual profit. Instead, they have already rolled out a series of new (and perfectly legal) fees, ranging from maintenance fees on previously free checking accounts to innovative charges on debit cards.

Here is a primer on the new bank fees, who is likely to encounter them, and how to avoid paying up:

Low-Balance Customers

The consensus seems to be that many of the new bank fees will fall most heavily on customers with low balances in their checking accounts. In a June 2010 article, the Wall Street Journal noted that the fees will “unfairly whack” customers who have always managed their accounts responsibly enough to avoid the old, now-outlawed fees. “That’s the group that will be most penalized in this environment,” Bill Handel, vice president of research and development for Raddon Financial Group, told the Journal.

Monthly Maintenance Fees

(markhillary)

Free checking accounts are a major target of the new fees. While most consumers “haven’t paid for a checking account in years,” banks are no longer giving them away as a means of bringing customers in.

One way that banks are already beginning to do away with free checking is introducing monthly maintenance fees. HSBC (HBC) North America has already put its customers on notice that their previously free checking accounts will now carry monthly maintenance fees as high as $15. USA Today reported in May that Minnesota-based TCF Financial (TCB) has eliminated free checking, except for those who use direct deposit or satisfy minimum balance requirements.

Neil Cotty, the chief accounting officer at Bank of America (BAC), told Wall Street analysts in April: “you should expect that customers will have a choice of banking more efficiently, bringing more relationships to us or paying a maintenance fee.”

As USA Today wrote, Bank of America had already begun testing annual fees of $29 to $99 on a “small percentage” of credit card accounts. Wells Fargo (WFC) eliminated free checking as well, as of July 1, 2010.

Debit Card Fees

(Ciaran McGuiggan)

Additionally, the Wall Street Journal found, some banks are now assessing monthly debit charges on customers who fail to complete a certain number of transactions per month. This, too, is a relatively new fee, likely being used to help offset lost revenue from overdraft fees.

In the past, banks largely ignored infrequent debit card users because of the exorbitant money they were making elsewhere. But now, checking accounts at Fifth Third Bank (FITB) come with a $3.95 monthly debit fee, waived only if customers spend $1,500 or more on their cards. Fraud alerts, another formerly free service, are now cost $5.95.

Minimum Balances

(CarbonNYC)

In early August, Washington’s News Tribune warned consumers that minimum balance requirements are also making a comeback. Adam Levin, co-founder of credit information website Credit.com, told the News Tribune that minimum balances are not only back, but that the required amounts will actually rise. To avoid being penalized, consumers are advised to connect their savings and checking accounts, which should lift the combined balance over any minimum balance requirement the bank might have.

Direct Deposit Requirements

(zappowbang)

Minimum balances are not the only new minimum being enforced by major banks. Monthly deposit requirements are also reportedly becoming much more common. In order to avoid a $15 monthly maintenance charge, the Wall Street Journal reports, some banks now require that account holders have at least one monthly direct deposits of $100 or more. Alternatively, five other activities, including debit-card purchases and online bill payments, can be used to avoid the $15 monthly fee.

Given that “more than half of all checking accounts are unprofitable to banks” (according to a Marsh & McLennan Cos. report cited by the Wall Street Journal), deposit requirements represent another attempt to make these accounts more lucrative.

Ways To Fight Back

Just as banks are not meekly accepting the elimination of profitable fees, you shouldn’t just accept the fees above. Here are several relatively painless ways to restructure your banking and finances to avoid being charged:

* Link your checking and savings accounts to form a higher balance than that of either individual account;

* Authorize direct deposit at work;

* Consider switching to an online bank (which usually charge few or no fees) if you do not bank in person;

* Consider switching to a local credit union or community bank (most of which do not and will not charge these fees);

* Use debit instead of cash for most or all purchases to avoid monthly debit fees;

* Enroll in online bill pay to avoid monthly maintenance fees (at some banks).

photo: Franco Folini

Surely you’ve heard that there are a lot of people in the US who don’t have a bank account. The “unbanked,” as they’re called, feature in all sorts of political arguments—about predatory lending, about personal responsibility, about the state of America’s finances.

Lost in those arguments is anything about the actual people involved and what we could reasonably do to help them. So let’s meet one Seattleite who ended up without a bank. His story is typical, and until recently, it would have had a frustrating, unhappy, running-to-stand-still ending. But an innovative city program helped him out, and it’s probably coming to your city soon.

Meet Michael

Michael, 40, lives in Seattle and works as an office manager. (To protect his privacy, he asked me not to use his last name.) “I used to be basically a professional person that was employed at a local company, a fairly large one,” he says. “But I ended up getting fired from my job and getting divorced, kind of around the same time.”

When he needed some extra cash between paychecks from part-time and temp jobs, he went to a payday lender. He gave them his checking account number so they could direct-deposit his loan. Then, when it was time to repay the loan, the payday lender tried to take the payment out of his checking account—and overdrew it. They tried again. And again. “It hit my account so many times that it was an enormous amount of money that I had to pay,” he says, “and I just couldn’t pay it before the bank closed it.”

This got him listed in ChexSystems, which is the bank account equivalent of having a bad credit report. You get into ChexSystems for overdrawing your account and failing to pay the fees on time, or for writing bad checks. Banks typically won’t let you open an account unless your ChexSystems record has been clean for a year.

So Michael started taking his paychecks to a check cashing service. Cashing checks at one of these storefronts is the opposite having a savings account: since the service takes 1% to 3% of every check you cash. Without a bank account, you can pay interest, but you can’t earn it.

Michael joined the ranks of the unbanked. His money lived outside the banking system and is hardly alone. According to an FDIC survey, as of 2009, 7.7% of Americans are unbanked and an additional 17.9% are “underbanked,” meaning they regularly use check cashing, payday loans, pawn shops, or money orders. African Americans, Latinos, and the poor are more likely to be unbanked. (By the way, wouldn’t “bankless” be a better term?) You can check out the data for your own city at EconomicInclusion.gov.

Michael knows he screwed up. “I’m the one who set up the payday loan thing anyway, so I certainly see my fault in it,” he says. “But I kind of feel like the system is sort of set up so if you get into that situation, it’s just… there’s no way of getting out.”

Getting out

Then he saw an ad on a bus for Bank On Seattle-King County. A lot of organizations—banks, credit unions, government, community organizations—have their hands in the program, which started in 2008. (The first such program launched in 2006 in San Francisco.)

The goal of Bank On is to open bank accounts for people who’ve never had them (including immigrant groups who may never have had contact with formal banking before) or who’ve lost the privilege because of past mistakes. It’s not a welfare program, and it has nothing to do with abstract principles of inclusion: it’s a recognition that life without a bank account is a waste of time and money, a drag on the local economy, a total pain in the ass.

As of June 2010, Bank On customers have opened 24,000 accounts at local banks, credit unions, and national banks, and the vast majority of those accounts are still open, active, and in good standing.

Financial institutions who participate in Bank On agree to provide customers with an account that meets certain criteria, including a low opening balance, no minimum balance, and no monthly fees. The bank agrees to waive one set of overdraft fees per year (“one set” is banker-speak of “a bunch of overdrafts that come in on one day”), and you’re welcome as long as your ChexSystems record has been clean for six months.

Michael found a home for his money at HomeStreet Bank, which has opened about 300 accounts through the program. I spoke to Kathy Williams, a chipper executive at HomeStreet. “The purpose of this program is to assure people that we can take a second look, and sometimes a third look,” says Williams. “People may have made mistakes in the past, often when they were younger or going through a difficult time, and we would believe that this time they would be much more capable of handling a checking account.”

To this end, the bank’s staff sits down with new Bank On customers and explains to them in plain language how a checking account works and what you can and can’t do with one. “In many cases, this has not been done for them in the past,” says Williams. Bank On account holders are given an ATM/debit card with no overdraft privileges: charges are simply denied rather than incurring one of those obnoxious $35 fees. Customers who keep their account open for three months and complete a financial literacy class receive $100 cash.

Tomorrow, the world

Seeing the success of Bank On in Seattle and San Francisco, over 80 cities have now implemented or are planning to implement the program. And the Obama administration has proposed $50 million for a Bank On USA program in the 2011 federal budget.

It would be easy to bash Bank On as a program that gives bank accounts to people who don’t deserve them. But if you’re looking for a moral hazard here, you won’t find it. Sure, it’s good PR for banks, but they pay to be in the program and they take all the risk. They’re looking to take in deposits, not charity cases.

A checking account is about the most boring financial tool in the world, and people who have them love to complain about them. Can banking really make a difference in people’s lives?

“Having that account makes life easier in so many ways,” says Michael. “Nowadays there’s so many things you need to do via debit card.” Before getting his checking account, he was unable to join a gym because they required plastic on file for automatic payments. “I was feeling like, hey, I want to get healthy, I’m trying to restart my life here, and I want to join a gym. Well, now I can do it because I actually have a way to do it.”

(futureatlas.com)

Mobile banking has been a blessing to anyone who values quick, painless money management. Here in the United States, the ability to check account balances and transfer money via mobile phone has reduced the need to bank at physical branches (never a fun task), or even sit in front of a computer. However, in emerging economies, mobile banking means something far more profound. While mobile banking is chiefly a matter of convenience in the developed world, for emerging economies it is increasingly the difference between banking or not banking at all. In our previous article on the future of mobile finance, Mint discovered that 36% of the people in India, for instance, “…earn less than Rs 5,000 a month [and] own a mobile phone, but do not have a bank account.”

Similar situations are found in other developing markets. TMCNet predicted in November 2008 that “…will grow at nearly 7 percent annually through 2013 and will exceed $200 billion by that time” and furthermore that “…the growth will be driven by emerging markets in nations such as Brazil, Russia, India and China, and on the continent of Africa.” Indeed, TMCNet continues, “…collectively, emerging markets will compose about 60 percent of the market share in 2013.” Gavin Krugel, director of mobile banking strategy at the GSM Association, goes a step further, claiming that, “…one billion consumers in the world have a mobile phone but no access to a bank account.” What is lacking in these countries are not mobile phones, but – until recently – mobile banking technology tailored to their unique needs and circumstances. Luckily, the mobile banking scene in developing markets is rapidly beginning to take shape.

Today, we’ll take a closer look at what mobile banking (in its advancing state) means for the developed world, both in the short term and down the road.

Helping The Poor

(whiteafrican)

One promising aspects of mobile banking is its potential to help the poor in developing nations. As noted earlier, the impoverished state of many of these nations is such that the average citizen has little or no access to real banking services. India, with its 36% of citizens earning less than Rs 5,000 a month and lacking a bank account, offers one example, but it is hardly the only example. GlobalEnvision.com cites The Consultative Group to Assist the Poor, which estimates that, “…80 percent of people in least developed countries are unbanked.” The Jakarta Globe makes mention of people in, “…rural and remote areas” of Afghanistan, Asia and Africa who can now “…get paid, send remittances or settle their bills” using mobile banking technology.

Thanks to such services, it has never been easier for citizens of an impoverished nation to receive money from friends or relatives in developed countries (which are often frequent transactions among these parties.) Even bill paying has long been cumbersome chore in many emerging markets. While those in the U.S. can pay with one click of a mouse (or even one tap on an iPhone screen), the Jakarta Globe reports a far more involved process in parts of Africa, where Fundamo regional executive Reg Stewart says, “…it takes one day to pay one bill” because Africans must, “…physically go to the bank, then you must queue, a long queue.”

Similar stories abound in just about every emerging market one can name. Simple money management tasks that are routinely taken for granted in the developed world often require painstaking effort elsewhere. Needless to say, such burdens make it difficult for the poor to participate in the economy or improve their own prospects in any meaningful way. Mobile banking technology has the potential to be trans-formative in this regard by expanding the sphere of opportunity of anyone who uses it.

Stronger Economic Growth

(woodleywonderworks)

The spread of mobile banking in developing countries has the potential to be the proverbial rising tide that lifts all boats. GlobalEnvision goes on to quote Jeremy Leach of FinMark Trust, who claims, “…what we’re finding from the evidence from economists is that actually greater access to financial services improves economic growth.” Nor is it at all difficult to understand why this would be so. It only stands to reason that when thousands (indeed, sometimes millions) of a nation’s citizens can only participate in the economy with physical currency, it will be difficult for the broader economy of that nation to grow with any regularity. In fact, this is a central focus of Hernando de Soto’s eye-opening book The Mystery of Capital.

The main reason, “…why capitalism triumphs in the west and fails everywhere else”, according to de Soto, is not corruption, insufficient compassion from developed countries or lack of entrepreneurship in developing ones. Far from it, as de Soto observes “…the inhabitants of these countries possess talent, enthusiasm and an astonishing ability to wring a profit out of practically nothing.” Astonishingly, de Soto states, “…if the U.S. hiked its foreign aid budget to the level recommended by the U.N. – 0.7% of national income – it would take more than 150 years to transfer to the world’s poor resources equal to those they already possess.” Rather, the missing link in many developing lands is a clearly defined property rights system and financial infrastructure. Lacking such a system, individuals cannot easily get loans by pledging their homes as collateral, for instance (since their ownership and creditworthiness are not officially recorded.) They are therefore left to rely on less advantageous sources of borrowing or, more often, simply not borrowing at all.

While mobile banking alone cannot create the, “…formal, unified property system” de Soto argues is essential to lasting prosperity, it is a bold step in the right direction. As ForeignPolicy.com explains, “…now, anyone with access to a cell phone has a place to keep his or her savings without needing a traditional bank account.” If a nation’s citizens can receive payments from remote senders, take out loans, and build a credit history using little more than the mobile phones they already have, there will be far less standing in the way of their playing larger economic roles.

Reduced Corruption

(futureatlas.com)

While corruption is not the sole cause of poverty in emerging markets, it is undoubtedly a large one. Interestingly, however, mobile banking has already displayed its potential to reduce corruption in the nations that adopt its use. The Jakarta Globe relayed a hopeful anecdote from Afghanistan, whose national police are paying its officers using services from Roshan as part of a test to limit corruption. It works as follows. Every month, Jakarta Globe reports, “…officers receive a text message in the language they prefer informing them that they have received their salaries.” Because, “…a lot of them are illiterate and cannot read”, voice mail alerts are also dispensed containing the same information. Once a text or voice confirmation has been received, officers are then able to collect their pay from an authorized Roshan agent. But the benefit is not simply, as Jakarta Globe says, “…that police officers don’t have to carry cash anymore” and can now “…send their money home, buy items, and take hwatever cash they want from an agent, or to store for the future.”

What the Roshan system has done is help ensure that officers who were being scammed out of their full salary get all the money they were promised. According to Zahir Jhoja (Roshan’s head of mobile commerce), corruption in officer pay was substantial and widespread, with many officers reporting being “…very surprised that they earn so much money.” Prior to Roshan, when payments were made in cash and nothing was documented, the very same officers, “…were receiving 25 to 30 percent less” every week, according to Jhoja.

The implications are clear. Much of the corruption in the developing world persists because of manual payment processes run by corrupt people. Such a system opens the door to bribery and all manner of dishonesty and fraud. Automated mobile systems like Roshan’s, however, offer streamlining that makes it more difficult for unscrupulous individuals to game the system.

Recap

To recap, we have learned that mobile banking has much to offer the world’s emerging markets. Chiefly, the ability to tie a bank account, investment portfolio or credit report to a mobile phone empowers poor people (many of whom have never participated in a formal banking system.) Consequently, these people are better positioned than ever before to increase their standards of living via easier access to debt financing and other financial services. Finally, mobile banking is displaying the early potential to discourage certain types of corruption that are rampant in developing nations. All told, there is much to look forward to with respect to mobile banking technology in the world’s emerging markets.

(Aaron Escobar ♦ (the spaniard)™)

For much of its history, offshore banking has been seen first and foremost as an avoidance maneuver. Countless action and mystery movies depict Swiss bank accounts as places for villains to hide ill-gotten fortunes. Indeed, one need not rely on movies for evidence of offshore banks housing shady activities. Offshore bank accounts have been used to hide the profits for everything from drug sales to arms dealing to bribes – not to mention tax evasion schemes. But today, offshore banking is much more than a haven for underhanded financial shell games. Increasingly, legitimate businesses and individuals are finding it more advantageous than ever to utilize offshore banks for the privacy, flexibility and accessibility that they offer. With identity theft and bogus lawsuits as prevalent as ever, it’s plain to see why people take comfort in storing assets overseas – especially in countries where banks pride themselves on being loyal to customers first, and governments second. Swiss banks, for instance, are famous for refusing to cooperate with all but the most serious and unavoidable of government snooping. Such secrecy protects not just devious crooks, but innocent citizens with legitimate reasons to keep prying eyes out of their finances.

Today, we’ll take a deeper look at offshore banking – including its key advantages, what it offers to different types of people and several nations known for protecting the assets and identities of their foreign depositors.

Privacy

(Anonymous9000)

Arguably most compelling benefit of offshore banking is, and always has been, privacy. The advantages of bank account privacy to criminals are too obvious to require elaboration here. However, privacy also has its advantages to completely honest, fair-dealing people and businesses. For one thing, the United States is currently the most litigious society that has ever existed. Sixwise.com cites a study from the Economic Journal showing that, “…Americans spend more on civil litigation than any other industrialized country.” The American Bar Association reported in 2006 that, “…there are over 1 million lawyers in the United States” – more per capita than any other country. Nor are all of those lawyers sitting around idly in their offices, as Sixwise states that the number of civil suits filed increased by 12% from 1993-2002 alone. Frivolous lawsuits are a big part of the problem and, “…are said to cost the United States $200 billion a year, according to Congressman Terry Everett.” Unlike in many European countries, the losers of American civil suits are not generally required to pay the winner’s legal fees. Within that kind of legal climate, simply possessing significant assets can be enough to make you the target of a lawsuit. Given such overwhelming incentives to sue, high net worth individuals often find it to their benefit to conceal some or all of their assets overseas. While it is relatively simple for lawyers to run asset checks on bank accounts residing in the United States, many offshore banks are far less transparent.

Despite a recent agreement to cooperate with US tax authorities, Swiss banks are still quite secretive. A recent BusinessWeek story reveals that while Swiss banks cooperate with investigations of tax fraud (a criminal matter), they will not turn over documents or the identities of account holders for civil matters (private lawsuits.) It’s tough to beat that kind of privacy when it comes to shielding assets from frivolous lawyers and lawsuits. Such people will not even know that you have an account, much less whether or how much money is inside.

Flexibility

(cliff1066™)

Another attractive benefit of offshore banking is the flexibility that it can offer. This is particularly true for traveling or international businesspeople, many of whom come to find it difficult or costly to run an international operation from a domestic, neighborhood bank account. Accepting payments in foreign currencies, for instance, often triggers hefty fees when those payments are received into American bank accounts. If you or your business regularly transacts in one or a handful of foreign countries, it quickly makes sense to simply set up accounts in those countries, rather than incurring fees by redundantly shuttling money overseas and back again. Best of all, it is usually not even necessary to visit the country in which you wish to set up the account. Belize.com, a website set up to attract customers to Belize’s offshore banks, states that, “…you can simply bank from wherever in the world you live, via a secure Internet connection, secure e-mail, post or telephone.” Many offshore banks in Belize even provide ATM cards that can be used in your home country. To its credit, Belize also promises ,”…near hermetic confidentiality” to its offshore banking clients. Additionally, many offshore banks provide 24 hour call centers whose operatives speak your native language and are available to you regardless of time zone differences. Clearly, flexibility is a compelling reason to bank offshore.

Hedging Against Political Risk

(srqpix)

A somewhat overlooked advantage to offshore banking is the partial hedge it provides against political risk. As Offshore-Fox.com wisely points out, “…assets held domestically are subject to political and social risks that you cannot control.” These risks are broad and innumerable in possibilities, including the risk that your government, “…may suddenly raise taxes to fund a failing economic experiment.” Recently, the federal government has taken a larger authoritative role in the banking and financial sector than at any time in US history. While it isn’t certain that their actions will adversely affect your domestic bank holdings, the risk is unquestionably there. Inflation is another looming danger with the potential to eat away at domestically held bank assets. In his article on inflation, John T. Reed recalls that, “…President Roosevelt issued Executive Order 6102 that required all Americans to turn in gold to the Federal Reserve bank for $20.67 per ounce—a below-market price—by 5/31/33.” Failure to comply with Roosevelt’s order resulted in, “…a fine of $164,000 in today’s dollars and/or a prison sentence.”

There have also been laws such as Regulation Q, which was instituted in 1933 to limit the interest rates that US banks could pay their depositors. The current financial crisis, again, has triggered massive new interventions into private finance whose implications (good or bad) for domestic depositors are not yet clear. It is easy to shrug off such risks as remote possibilities that seem unlikely to ever occur. However, when hundreds of thousands (or even millions) of dollars are at stake, high net worth individuals often prefer to hedge against political risk when doing so is cost-effective. Offshore banking is one of several ways to do that with respect to their assets. Indeed, QWealthReport.com‘s article on myths about offshore banking reports that, “…most people who bank offshore these days are not evading taxes” – as is commonly assumed – but are instead seeking, “…protection against political risk factors”, among other things.

Recap

Essentially, the most compelling advantages of offshore banking are privacy, flexibility, and protection from political risk. Conservative or high net worth individuals can often keep assets under the radar of frivolous lawyers by storing them in offshore accounts. Businesspeople with nothing whatsoever to hide can nonetheless benefit from the tremendous flexibility and cost savings (in eliminated fees) that banking overseas can offer. Finally, citizens from all walks of life can utilize offshore banking as a partial hedge against political and social uncertainty by ensuring that at least the money they keep overseas will not be harmed by adverse laws or regulations. To be sure, offshore banking has come a long way from being the sole province of criminals and con-men.

(whiteafrican)

One of the most universally dreaded errands throughout American history has been going to the bank. Synonymous with long lines, incompetent employees and bureaucratic nightmares, banking in person is rarely described as anything other than a necessary evil. Of course, face to face banking has become less frequent during the last decade, due to the rise of online banking. The ability to pay bills, examine account balances and transfer funds with the click of a mouse has been nothing short of a godsend for most consumers. In fact, InternetFinancialNews.com stated in February 2009 that online banking has grown even more popular during the current recession, with “…28 percent of consumers saying they are using online banking more then they did a year ago” and another “…63 percent said managing all of their accounts online from one site would help them feel more in control of their finances.” However, even the relatively recent innovations of online banking are quickly being surpassed by the next big thing — mobile banking. While it’s barely been a decade since online banking gained mainstream appeal, it is now possible to do just about everything a bank website offers from a mobile phone. A group of friends searching for an ATM, for instance, need only use MasterCard’s ATM Hunter for the iPhone. Bank of America users can manage every facet of their accounts from their iPhone, Blackberry or Android. And of course, Mint offers an iPhone app for remotely tracking every bank, retirement and investment account you happen to have. But cool and exciting as these innovations are, they are actually just the beginning!

Below, we’ll comment on the future of mobile finance by profiling some of the most significant, new developments, some of which are already assisting consumers in all manner of remote transactions.

Mobile UPC Scanning

(Mu0x)

Perhaps the most intriguing development in mobile finance is how it extends far beyond simply bringing online banking to mobile phones. Indeed, the technology often extends beyond banking completely. One exciting example is mobile bar code scanning. While much remains to be done before mobile phones can scan and inventory bar codes as reliably as dedicated scanning equipment, early scanning programs already exist for the iPhone. One such program is RedLaser 2.0, which enables users to scan bar codes from a grocery store in real time. This has enabled consumers to comparison shop while standing in a store aisle by running scanned bar codes against a database of bar codes from competing stores and learning who has the cheapest price with moments.

Red Laser’s website postulates several other potential uses for mobile UPC scanning, including scanning a book for reviews while you’re in Borders and scanning movies to add them to your TiVo. Of course, not all merchants are as eager to embrace this technology as consumers are. In December 2008, ReadWriteWeb reported several instances of big-box retailers like Target requesting that customers stop scanning the bar codes in their stores, even going so far as to cite store policy. Fortunately, not all retailers are giving mobile UPC scanning the cold shoulder. Indeed, ReadWriteWeb declares that “…instant price match is retail’s future” and offers several ways for retailers to profitably engage users of such software, including offering “…easy-to-find bar codes on their promotional items with signage encouraging customers to compare the price instantly with other stores in the area” which would, in effect, “…make bar code scanning the new advertising circular.” One thing is for sure – it will be nothing short of exciting to witness the direction that mobile bar code scanning takes in years to come, especially with Venture Beat proclaiming in January 2010 that “…smartphones are one of the hottest growth sectors in our economy right now.”

iPhone-Based Credit Card Processing

(Gonzalo Baeza Hernandez)

A popular misconception about iPhones is that they are merely “toys”. One of the most fascinating advances in mobile finance are iPhone-based credit card terminals. Gone are the days of small merchants and business owners having to buy expensive processing terminals before they can accept credit card payments. Tuaw.com profiles several iPhone-based credit card terminal apps that one can imagine being perfectly viable for just about any small shop owner to use — in fact, you don’t even need the shop. One of the featured apps (simply called Credit Card Terminal) is available for just $0.99 via the App Store and allows users to “…enter credit card information, complete transactions, and even view and refund past sales.” Another app called Billing: Credit Card Terminal retails for the higher price of $19.99 but includes the ability to record a customer’s signature as part of all transactions processed on your phone. International merchants aren’t left out in the cold, either. iSwipe Global supports over a dozen foreign currencies, as well as PayPal and CyberSwipe.

Admittedly, most major retailers wont be be jettisoning their swipe terminals for iPhone applications anytime soon. Still, the affordability and convenience they offer to smaller business owners is truly astounding. Even businesses that prefer standard credit terminals in their physical locations can benefit from the ability to close remote sales without being anywhere near a computer. And while some are skeptical (a commenter on Tuaw.com remarked “…illicit peddlers of goods just got a fantastic way to make cash free transactions”), it seems that the upside of this technology far outweighs the risks.

Extending Bank Accounts to the World’s Poor

(Monica’s Dad)

Some analysts are also predicting that mobile banking will help extend banking services to the world’s poor. India’s Telegraph, for instance, reported in February 2010 that the “…State Bank of India will soon offer no-frills savings accounts on mobile phones” as part of a broader project to assist “…those who earn less than Rs 5,000 a month, own a mobile phone but do not have a bank account.” While this might appear to be a rather small slice of India’s population, the Telegraph estimates that “…at least 36 per cent of the Indian population falls in this category”, which includes such varied people as “…construction workers (often migrants), vegetable vendors, rickshaw pullers and railway porters.” India has ambitious plans for the program, which is designed to be as convenient and user-friendly as possible. Abhiskek Sinha, the CEO of Eko India Financial Services, told the Telegraph that all a customer of this program must do is “…go to his local grocery, or a mobile recharge agent or a chemist to get a zero balance account.” Following that, the user can “…deposit, withdraw, remit and check balances – all by just clicking a few buttons on the mobile phone.”

Together with the rise in international micro-lending to those in developing countries, wider use of mobile banking and finance software has the potential to make a difference in the lives of citizens of India and elsewhere. Anything mobile finance can do to spur greater participation in the banking systems of these countries has a tangible, immediate impact on those countries by increasing the funds available to local entrepreneurs and businesses.

The Future

Despite whatever reluctance particular merchants and skeptics have, it is clear from observing these developments that mobile finance is here to stay. Indeed, it’s easy to imagine a time in the not-so-distant future when entrepreneurs can literally run every aspect of their business (from account management to credit card processing and more) from a standard smart phone. Initiatives similar to India’s hold the potential to get millions of the world’s poor involved in the mainstream financial system. More broadly, banks and investment houses may soon find themselves squeezed out of certain transactions entirely, as consumers gain the ability to handle more and more of their finances personally via automated mobile technology. All in all, it’s hard to envision any scenario where banking and finance wont change substantially in the next five to ten years as a result of mobile finance.

UPDATE: A special thanks to Budgets Are Sexy for including us in the 245th Carnival of Personal Finance.