Paper checks aren’t a safer way to pay

Dear Liz: I pay my bills and credit card balances monthly by check rather than by online banking. This is because I don’t want to provide a clear path for a possible unscrupulous company or person with access to my account to simply take extra money from my account. Are my worries about this possibility reasonable? Or is there simply no possibility of theft from my account in this way?

Answer: It’s not that your fears aren’t reasonable. It’s that you’re putting too much trust in paper checks.

Pull out one of your checks and take a close look at it. Along the bottom is a series of numbers that include the bank’s routing number and your account number. That information, along with your name and address printed on the check, is everything an “unscrupulous company or person” needs to raid your checking account.

Once the bad guys have your check, they can alter the amount, counterfeit a new batch of checks or take over the account by adding themselves as joint account holders and changing the address, among many other possibilities.

Or they can set up an electronic transfer out of your account. This is one of the reasons people in debt are told not to give their bank routing and account numbers to debt collectors, since unscrupulous collectors can clean out the account.

Furthermore, paper checks don’t have the federal protections that cover electronic transactions. Banks are required to investigate reports of fraudulent electronic payment within 10 days (or within 45 days if the bank provisionally credits the disputed amount, up to $2,500, to the consumer). But users of paper checks are covered by a patchwork of state laws and subject to the agreement they signed with their banks, which may not provide them with as much protection.

So paper checks aren’t safer than electronic transactions. It’s just your familiarity with this form of payment that makes you think you’re protected.

How to cope with the end of free checking

Dear Liz: I’ve been reading a lot lately about how banks are going to do away with free checking. I’m on a fixed income and can’t afford to pay a bunch of fees. What can I do?

Answer: First, scrutinize every mailing or email you get from your bank to learn about any changes that might be coming to your account. Many banks will still allow you to avoid fees by keeping a minimum balance, arranging a direct deposit or making a certain number of debit card transactions. If you can’t modify your banking habits to avoid the fees, consider switching your account to a credit union. These member-owned institutions are likely to continue offer free checking or to at least make it easier to qualify. You can search for credit unions for which you might be eligible at www.findacreditunion.com.

Beware “exit fees

Dear Liz: My wife and I are rolling over our bank certificates of deposit to another investment company to consolidate our holdings. Two weeks before the CDs’ maturity date, we notified the bank and filed the necessary papers. The bank didn’t complete the rollover for two months and then withheld $50 for something it called a “Trustee to Trustee Transfer Fee.” What is this, and can the bank make this charge?

Answer: Such “exit fees” are a way for banks and brokerages to nip an ounce of extra flesh from departing customers. Many financial institutions charge them, but they often aren’t well disclosed and few investors know to ask about them. You’ll know better next time.

What you gain from switching to a credit union

Dear Liz: I want to stop supporting the greedy banking industry by changing my checking account from a big bank to my local credit union. But I’m worried I will have to give up services I like, such as online banking and free bill payment. What will I give up if I use a credit union?

Answer: You may not have to give up anything, and you may gain a few things, depending on how you bank.

Credit unions are member-owned, which means they don’t have to worry about making profits for shareholders. That translates into better interest rates and lower fees than banks. Many people discover credit unions when they’re looking for auto financing or personal loans, drawn by credit unions’ typically lower rates compared with those charged by banks.

You may find banking with credit unions cheaper in other ways. Most have very low minimum balance requirements for free checking and savings accounts. Many credit unions are also members of the Co-Op Network, which offers fee-free access to more than 28,000 ATMs nationwide, far more than any bank.

That doesn’t mean they’re right for everyone. While most credit unions offer online banking and free bill payment services, for example, their other services may vary. Some offer real estate loans, for example, while others don’t.

Before you switch, you’d be smart to review your transactions over the past few months and think about what loans or services you’re likely to need in the future. Make a list and ask your credit union what it provides and what fees it charges.

If you decide to move, open your new accounts first and set up online access so you can monitor your transactions. Then move any direct deposits you have, such as your paychecks. Change any automatic debits and recurring payments so they come out of your new account. Keep open your old accounts until all payments have cleared, then shut those down.

To find a credit union you can join, visit www.creditunionfinder.com

Move your money away from fee-hungry bank

Dear Liz: My online savings account has been taken over by another bank, which started charging a fee to transfer funds to external accounts. I feel like my savings are trapped and I want to move them.

But if I try to transfer the money to another bank, will I have to pay the fee?

Answer: Perhaps yes, but a one-time fee is better than being nickel-and-dimed to death.

One of the big advantages to online savings accounts — besides better interest rates — has been the freedom to save and move your money around without paying onerous fees. It’s unfortunate your new bank has changed the rules, but you’ll find plenty of competitors that will be delighted to accept your money without charging account or transfer fees.

Consider chatting up one of the bank’s phone representatives or branch tellers to see whether there’s a way to get your money out for free. If not, pay the transfer fee and consider it a small price to get free.