People who either don't trust or can't afford to rely on a bank have traditionally used pay-day lenders and check-cashing stores instead. Now some of them are using one of few companies with revenues that surpass even Bank of America: Walmart.
We’ve heard a lot about people angry at the steep new fees that big banks are charging, and how they’re closing their accounts in droves. And the fees the unbanked pay to services like pay-day lenders and check-cashing services have always been a horror show. But who knew some of these customers would find relief with another corporate giant – Walmart.
According to The New York Times, instead of opening an account at a community bank or credit union, some folks are ditching banking altogether in favor of Walmart’s stand-alone financial services, which the company began offering in 2003. These include check cashing, bill pay, wire transfers, and even prepaid debit cards.
According to The New York Times, Walmart has no plans right now to accept deposits or make loans – although there’s a Walmart credit card with an APR of nearly 23 percent.
Looking at the prices for Walmart’s various services, I can see the appeal to consumers who might have kept low bank balances or run afoul of big overdraft fees, as well as those turned off by check-cashing fees or the possibility of debit card fees. Here’s what Walmart offers…
- Check cashing: 1 percent capped at $3 for checks up to $1,000; flat fee of $6 for amounts up to $5,000
- Bill pay: 88 cents to $4, depending on payment speed
- Money transfer: $4.75 and up for transfers under $50 in store, $11 and up for transfers online (For some reason, the fees to international destinations are lower, starting at $3 online.)
- Prepaid debit cards: $3 to acquire, or issued free online; $3 “reload” fee, waived if you’ve already paid the check-cashing fee to add funds or if you transfer money from a bank account or direct deposit; $3 monthly “maintenance” fee
- Credit cards: No annual fee, 22.9 percent APR
How do these rates stack up? Well, a 2009 analysis of “alternative financial services” – non-banks – released by the FDIC found the average check cashing fee to be above 3 percent. A clear win for Walmart.
As for money transfers, the retail giant seems to have Western Union beat too: The latter wants at least $5 for a three-day transfer of $50 within the United States, while Walmart will do it in four hours for less. But transfers through PayPal cost 2.9 percent, which beats Walmart, at least on the low end.
Yet many smaller banks and credit unions offer all these services for an even better price: free. So why don’t these people use them? As the trade group Financial Service Centers of America puts it…
“Many low-and-moderate-income individuals and families live paycheck to paycheck and do not have the means to leave their hard-earned money in a bank account. Financial service centers allow customers to access 100 percent of presented funds instantly, without having to wait for the funds to clear, thereby bringing them immediate liquidity.”
In short, people with very little money need to keep it all in hand. And at least these fees are visible and static, whereas having a bank account seems to require constant vigilance for unexpected new fees.
Still, for responsible consumers who can meet the minimum deposit requirements, a community bank or credit union seems the cheapest way to go in the longbrun. You can learn to shop for a good one in 7 Steps to Switch to a Better Bank. And if you want another alternative to “alternative financial services,” check out 5 Reasons to Move to a Web-Only Bank. And to find the best rates on savings, be sure to check out our rates page.
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