Yes, you read the headline right, there really is a bank with no fees. A couple of interesting stories crossed my desk this week. First, as part of her research, a university professor went to work as a teller at a check cashing service. Yep, one of those services that charges you to cash checks. Services like this are used primarily by the so called 'unbanked' population. These folks that don't have a banking relationship are typically viewed as being exploited. As a result, there have been many campaigns to try and 'help' these people by bringing them into the banking system. Some have never had bank accounts, others simply choose to operate on a cash basis, others have black marks in their banking history that make it very difficult to get approved for an account.
The most interesting part of this story was that despite the reputation check cashing services have of being sleazy, expensive, and exploitative, the article points out that many people using such services are actually better off than they would be using a traditional bank. With the recent Wells Fargo scandal, which resulted in the bank paying a $185 million dollar fine, banks seemingly have no better reputation today than check cashing outfits. Banks have cleverly come up with more and more account fees, and if you make a mistake and overdraw your account, you could easily end up owing hundreds of dollars. So, as 'horrible' as check cashing services may actually be, we have reached a point where many banks today are actually worse! But, there may be an exception, a new kind of bank, a bank with no fees!
A second story that came to my attention this week was about a bank simply called Simple. Simple is an FDIC insured 100% online bank. Now, it is not the first online bank, but it may be the first to do something quite extraordinary: promise customers no fees. Yes, absolutely no fees. No fees for a checking account, savings accounts, overdrafts, and on and on. Well, this sounded more than a little too good to be true, so I had to investigate.
The first question I had was, 'How do they make money, if they have no fees?' The answer was not so elusive, and here it is from their FAQ -
Great question. There are two ways we make money at Simple.
Although we love technology, we don’t knock tradition. In the past, banks made most of their profits off interest margin—the difference between the amount of interest they make on loans, and the interest they pay customers on their deposits. Our partner banks split this interest margin with Simple.
When you swipe your debit card, the merchant pays a service fee (called interchange) to the issuing bank. Our partners split this with us.
That’s it, which means we only make money when our customers use and love their accounts.
Yes, I am old enough to remember a time when banks made money as, well, banks... when banks paid you for having money on deposit! Just as explained above, the original concept behind banking was that a bank would make money simply from the interest margin. Banks borrow money at wholesale rates and loan it out at retail rates, and that is historically what made the wheels go around. Now, we enter an era where bank management conspires to open up accounts without customer's permission, strategically decide what order to clear checks to generate the most overdraft charges, give people debit cards that can overdraw their checking account and trigger overdraft fees, and more. Oh, and then there are those monthly account fees. Just to have an account, you will be asked to pay your bank money. Bank Of America is charging $12 monthly for checking accounts and $5 monthly for saving accounts. You can avoid these fees if you keep certain minimum balances or make minimum required deposits, but if you don't, you will be assessed a fee just for having an account!
How Strange Would It Be To Have Your Accounts At A 100% Online Bank?
The Internet is changing everything, and the latest example of that appears to be banking. More and more research shows fewer and fewer people actually going into bank branches. Furthermore, with the availability of banking apps and websites, most people are ostensibly 'banking online' already. But, there is that comfort of knowing that if you run into a problem, you can always go into a branch to talk with someone, right? Well, try and do that sometime and you might be surprised. The last time I went inside my bank to deposit a check, I waited more than 30 minutes. I stood there looking at six teller windows, but only one window was open. I was inside only because the ATM was down and so was the drive- through.
The largest factor that is driving this massive change in banking are millennials. Millennials bank online, plain and simple. Not only have I seen the research on this, I have asked many millennials myself, and young people are now pretty much banking 100% online. Even if they have an account at a local bank, they never set foot inside, and do all of their banking online.
The 'digital envelopes' feature allows you to stash away money for specific goals
I am sure you have a lot of questions, like how do you make deposits, withdrawals, what about using ATMs if there are no physical locations? Well, it appears that Simple has answers to all of these.
- Deposits are made with an app by simply taking a picture of a check
- Pay your bills through their free online bill pay service
- Your employer can automatically deposit your payroll in your Simple account
- Simple is part of a network of 50,000 ATMs
- Other great features, such as being able to link to your Paypal account and many more.
The only element that seems not quite perfect is dealing with cash. In order to deposit cash, you will have to buy a money order and then deposit it by taking a picture of it and then using the app (just like you do when depositing a check). Seems like it would be easy enough, but money orders are not free. So, if you deal with a lot of cash, Simple might not be for you.
For more details on Simple, check out their FAQ page. As for me, I think I am going to close out my local bank account and give Simple a try. Please use the comments section below and you can share your own thoughts on making the move to 100% online banking.
Helping you make the most of God’s money!