Why Traditional Banking Sucks and What To Do About It
03 August, 2021
You probably know how a traditional bank works. Maybe you rode shotgun with your mom growing up every time she had to make a deposit. Or perhaps you learned to navigate the system all on your own. Either way, a brick-and-mortar bank is usually the default. But does it have to be?
When was the last time you felt like your bank was on your side? Or are you typically stuck between the red tape and a hard place? So, you bend over backward to make things work for them. Meanwhile, banks stagnate in their self-serving practices. Innovation gets left at the door.
That’s why it might be time to consider new banking alternatives and put your money someplace where it matters.
Why Your Bank is Missing the Mark
The world is progressing at a fast pace. Consumers are quick to adapt when new changes get thrown their way. Yet, it seems like some industries struggle to keep up with the times. The financial field is no exception.
Most big banks are caught up in the past, expensive, and lack customer knowledge. When consumers feel like just another number to their bank, their trust shrinks. Some of the issues that contribute heavily to these feelings include:
Excessive (and Hidden Fees)
Let’s be honest. Most people rarely feel like banks are on the side of ordinary, everyday folk. But nothing seems to drive that point home like high fees, especially when they take you by surprise.
For example, physical banks are notorious for requiring a minimum account balance, whether you have a checking or savings account.
And then there are the overdraft fees when you go below your balance. In addition, they can charge you more than once a day. For a sense of scale, banks collected over $30 billion in overdraft fees during 2020. They hit a record-high average of $33.47 per penalty, too, despite federal regulators’ encouragement to waive these types of fees considering the COVID-19 health crisis.
On the other hand, digital banking apps like Envel don’t have fees. So among the many costs cut out of your life, you can say goodbye to monthly fees, minimum balances, service fees, ATM withdrawal fees from within the MoneyPass network, and more. You can check out the rest of the list at Envel’s FAQ page. With all those fees gone, you can focus on reaching your financial goals and letting your interest grow.
Lack of Customer Service
Occasionally, a customer gets lucky with the employees at their bank. They take the time to build rapport with their clients and treat them sincerely. But many consumers feel like they’re talking to a brick wall.
When something goes wrong, customer support can be a challenge in itself. Either you play phone tag for hours (even days), or you find yourself trapped in a loop. Switched from one person to the other, no one seems to have a solution other than keeping you on the phone.
Often, it doesn’t matter how long you have been with that bank either. The institute might have a loyalty program, but it still doesn’t seem to give you an edge when it matters. But great service is what keeps a customer loyal in the first place – since it’s what most want in their bank. According to a study published by The Ascent in 2020 on consumer banking values, the quality of their bank’s customer service was the most important feature.
Terrible Mobile App Interface and Convenience
Modern problems call for modern solutions. So, if the staff or employees at your bank are less than helpful, you may turn to the next best thing: technology. Using an app or online interface eliminates the trouble of dealing with people after all. So, you probably expect it to simplify your banking experience.
You’re not alone in that opinion. The Ipsos-Forbes Advisor U.S. Weekly Consumer Confidence Survey reported that around 76%, or approximately three in four Americans, used their primary bank’s mobile app for everyday banking within the last year.
However, traditional banks have physical locations. That’s where their main focus sits. So, creating a convenient and smooth-running app becomes less important. A lack of user-friendliness or readability lends to confusion and, eventually, frustration.
Minimal Financial Guidance
Traditional banks tend to have multiple branches and thus have a large clientele. Without a robust interpersonal connection, consumers often feel like just a number. In turn, the financial advice they receive lacks a curated touch. If the advice doesn’t accurately reflect your situation, then how do you follow it?
One benefit of digital banking is built-in features designed to help you make financial decisions. Envel, in particular, offers the Envelope System. Essentially, it gives you up to 99 spending accounts provided by nbkc bank, Member FDIC. Under this, you have the option of an Autonomous Envelope, Goal Envelope, Virtual Envelope, Custom Envelope, or a Shared Envelope. Each one comes with its own benefits that serve your varied financial needs. Opening one also generates four other Envelopes (Cash, Emergency, Bills, and Vault) to help you divvy your money.
There’s also a fun bonus feature with adjustable humor settings. After all, financial planning is dry and slow. Injecting a little fun into how the system talks makes it easier to understand new information.
Traditional Banking Alternatives
Traditional banks have plenty of hurdles between them and their customers’ satisfaction. You may be content with your normal bank up until now. But if any of the above concerns rubbed you the wrong way, it may be worth it to consider alternatives.
Where traditional banks have certain gaps, other financial management options come in to fill them. Some help you minimize your fees, whereas others prioritize higher interest rates. Finding the right one depends on what you want out of your banking experience. Here’s a sample selection to get you started:
Cash Management Accounts
In general, you can think of a cash management account (CMA) as the combination of a bank account and brokerage account. It’s an investment option that still gives you access to daily cash flow.
Generally, brokerages only offer CMAs to select customers with excess income. However, there are benefits if you qualify. The bank-like account gathers interest at a money market rate, which is higher than traditional versions. You also receive privileges like an ATM debit card and possibly a margin account or line of credit.
If you overdraw, fees are usually lower than a traditional bank’s, and they sometimes qualify for tax deductions. Of course, all of this depends on the service provider and specific CMA, though.
Credit unions offer you an experience similar to banking. They operate in familiar ways as financial institutions. However, credit unions are nonprofit organizations and run by a democratic group. Typically, the members are connected through something, like a labor union, community, or association, and they volunteer for their position.
Together, the board members vote on pressing issues such as interest rates. Since they’re all volunteers and the credit union is not for profit, voting targets better services for clients.
Credit unions can allow you to save at a higher interest rate without higher fees. Although, there may be fewer services or more limitations on them compared to a traditional bank.
Community and Local Banks
Traditional banks have scale on their side. So, you have multiple branches across states or counties, which makes banking convenient. But they often lack a personal touch.
In contrast, community and local banks are strongholds in their community. Rural and agricultural communities particularly depend on them for their banking needs. Since they’re grounded in the area, they provide a flexible and understanding style of service you likely won’t find at a big bank. Their personalized approach and knowledge in local matters can make it easier for you to get financing. Also, community banks try to offer competitive rates, sometimes even waiving fees or offering free checking accounts.
Money Market Mutual Funds
While a money market mutual fund, or simply called a money market fund, comes with the convenience of a bank account, it isn’t one. Instead, they’re a type of mutual fund. So, individuals pool their money together to put towards a group investment. But, you can still access the money.
If you want to build up your investment portfolio, they are a strong candidate. Their returns, or the money they earn you, might not be as high as other options. However, they’re not as risky as those competing securities either.
Compared to a traditional savings account, though, they’re competitive. They work best for someone with more funds who still wants to write checks or access the cash while it grows.
Online banks offer all the services you expect with a traditional bank, except the physical location. If you generally prefer banking through your phone or online, this may be your best choice.
There are some perks special to online banking as well. They typically advertise free checking or savings accounts and low-fees thanks to their lack of overhead. Generally, you only run into fees with certain transactions, like a wire transfer, and if you make a mistake, such as bouncing a check. Additionally, you can probably find higher rates for the savings accounts and CDs, or Certificate of Deposits.
However, some individuals prefer an interpersonal touch in their banking. If so, options with a physical location to visit may suit you better.
Challenger Banks (Neobank)
Challenger banks (Neobanks) are sparking a new era in the banking world. Their goal is to compete with more prominent banking institutions by providing more innovation, technology, and customer experience. These banks offer more products for customers to choose from, but they are getting better interest rates as well. A recent study by Money Facts discovered that challenger banks have 0.66% higher average AER on one-year fixed-rate bonds when compared to traditional banking institutions.
You may find that as customers become more reliant on digital banking and the convenience of having your bank right at your fingertips, traditional banks may have no choice but to collaborate with challenger banks to meet the needs of their customers.
How to Find a Bank to Fit Your Needs
You might be thinning out your options for your first bank. Or, perhaps you’ve heard enough critiques and want to switch your primary bank.
Opening a new bank account requires thorough research. It’s not fun, but a decision today can affect you for a while down the line. Optimizing your savings and picking the right service makes a huge difference (on your good days and bad). Choosing the best institution depends on the things that matter most to you, though. Get a strong sense of your choice before settling with one.
Look at the way the fees are structured with your possible bank. Keep in mind that a larger or traditional bank usually comes with more fees. Physical branches have to deal with more overhead, which they need for budgeting and pricing. Still, that doesn’t help you out. So, compare your options. If you want fewer or less significant fees, consider smaller banks or online avenues that don’t have to deal with overhead.
You also want to check where the fees kick in. Ask the service directly what costs to expect as a customer. That way, you won’t be blindsided in the future.
Look at the Convenience Factor
Different choices will fit more or less easily into your life. You want to make sure you choose the option that’s “more” if it’s important to you.
For example, you might be alright with traveling to your bank. But, you still want the option of a remote deposit in case of bad weather or a busy day. Check for easy, digital uploads through your bank’s app.
Alternatively, you may live a hectic lifestyle. If so, electronic alerts are vital. You want to know when something’s happening as soon as possible. With texting options and automated alerts, you don’t have to suddenly change your schedule to fit your banking.
Check for Features to Help You Achieve Your Goals
Banks are supposed to be more than holding cells for your money. You have goals waiting to accomplish. Maybe you want to fund your child’s wedding one day, or you hope to support your spouse through your golden years as a couple. If so, every penny counts.
You can comparison shop for the best loan from different lenders. However, you’ll probably open a savings and checking account with your primary bank. Look for minimal fees to save hundreds over the long-term and a high annual percentage yield (APY) on your savings. A high interest rate will help you achieve your financial goals sooner rather than later.
Open an Account
After you go down your checklist, you’ll find the bank that best suits your needs. Once you know which one, it’s time to open an account there. Remember: most people want to stay with their bank for the long run. Choose one that you can see using not just today, but also down the road (although there’s nothing wrong with switching it up later).
So, once you go through all the deciding factors and open the account, you need to fund it. In some cases, you may need to visit the nearest brick-and-mortar branch to do this. You typically bring a first deposit and some level of identification. The bank’s website will probably detail acceptable documents or items for that, but you can always call and ask if you’re unsure.
The final choice all depends on which bank is the best for you.
Ashley KilroyRead more from Ashley Kilroy