Smart Spending

Will Your Next Bank Be Wal-Mart?

Exorbitant overdraft fees, rising maintenance fees, check charges, debit card charges—these rising costs have resulted in the withdrawal of funds from banks and credit unions and, for many, greater use of Wal-Mart’s pre-paid debit cards. Wal-Mart you say?  Wal-Mart is not a bank.  No, and not regulated by the FDIC, a fact banks that opposed Wal-Mart’s attempt to gain a bank charter now see as “unfair”.

Even so, many of those disenchanted with their banks have started using Wal-Mart’s menu of financial services rather than being “nickel and dimed” by their banks. This change is a head-shaker to those not familiar with living paycheck to paycheck and the sickening overdraft fees that occur because of a lack of communication on a shared bank account.

“What was I supposed to do,” the offending spouse proclaims, “The car was on empty – I had to get gas.  I didn’t know the bank account was that low.”

Many who have experienced overdraft fees feel it is better to keep the cash in hand. There’s not a lot left over after paying bills anyway, and, at least when the money runs short, there will be no $35 overdraft fees to add to their woes. So, when they get their check they head to Wal-Mart, which, in many small towns is the after work place to shop – the only place still open – and the cheapest place in town to cash a check.

Wal-Mart charges a flat fee of $3 rather than the one to five percent of the check charged by storefronts. Wal-Mart knows customers who come into their store for this service are likely to be doing one thing with the cash: shop.  While there, they can also pay their bills and wire money for a fee.  For those transactions requiring plastic, Wal-Mart provides the answer with its pre-paid debit card.

Never mind the debit card doesn’t build credit.  The bank issued credit cards they once had ruined their credit when they couldn’t make their payment. Never mind that the pre-paid debit card doesn’t pay interest — they’ve never had enough money for a savings account and are not used to interest anyway.

Never mind that since Wal-Mart is not technically a bank, the FDIC does not insure the money stored on pre-paid debit cards.  Most people would assume there is less chance of the retail giant going bankrupt than many of today’s “too big to fail” banking concerns.

It’s true Wal-Mart can’t make loans but Wal-Mart can issue a credit card at 25% interest.

The fees on Wal-Mart’s pre-paid debit card are competitive in the market of the unbanked consumer.  The card charges $3 for purchase and $3 per month for maintenance.  It costs $3 to load the cards unless you use direct deposit, in which case there is no fee.  An added bonus of depositing $1000 or more per month is the waiving of the $3 maintenance fee. However, ATM inquiries are $1, and cash transactions at ATM’s and banks are $2.  Additional cards or replacement of stolen cards are $3.

The Wal-Mart Money Card provides a discount on gas; a “rewards program” not usually offered on pre-paid cards

Not a particularly good deal for the consumer but still not as bad as some— like Bank of America’s $5 debit usage fee, or the $5-$15 monthly fees most banks charge on checking accounts.  With the Wal-Mart card, there’s no overdraft charge and no credit check.  Plus, they’re usually open when the customer needs services.

Will your next bank be Wal-Mart? Probably not for most folks but for many, it already is.