Sense & Centsibility Blog

Why Have a Bank Account?

In this age of pre-paid debit cards and bitcoin, are bank accounts on their way out? (I use “bank account” generically to include other financial institutions, like credit unions.)

I won’t even touch the Bitcoin phenomenon as I still can’t wrap my head around my music being in a cloud, let alone my money.

According to the FDIC (Federal Deposit Insurance Corporation, an independent agency created by Congress to examine, supervise, and insure banks,) the number of people in the U.S. with a bank account is actually increasing.

I find this a positive trend for a number of reasons:

SECURITYFDIC and NCUA

Banks are insured against failure through the FDIC, and credit unions through its equivalent – NCUA (National Credit Union Administration.) Always look for the FDIC or NCUA plaque in the office location or on the website. (Not all financial institutions are insured – be careful with online or foreign banks.)

  • The insurance funds cover accounts like savings, checking, money market, and certificates of deposit (CD’s) up to $250,000!
    • Compare that to the safety of keeping your life savings in a mattress – no recourse with a house fire or burglary.
    • Think of the pain of leaving your wallet on the bus with your freshly cashed paycheck.
  • Fraud protection – federal law requires standard debit cards issued by financial institutions to provide some fraud protection. This is not true for most pre-paid debit cards.
  • Most financial institutions have processes that monitor activity on accounts and alert us if there is a suspicion of fraud or ID theft.

LOWER COSTS

  • According to data analyzed by NerdWallet in 2016, the average checking account cost is about $150 annually, assuming a monthly maintenance fee, occasional ATM fee, or an overdraft or two. Find an account with no monthly fee and that drops to $30/year average. There are ways to pay no fees for your checking account. Shop around!
  • A pre-paid card without direct deposit can cost upwards of $500/year with all the fees to load money, get cash, purchase money orders, etc.

 FINANCIAL STABILITY

  • Banks and credit unions provide tools to manage personal finances –
    • Statements plus online and phone access to review transactions and monitor spending.
    • Useful charts of spending habits to help develop and maintain an budget
  • Bill pay service – set up your bills to be paid on time every month!
  • Savings accounts – regular and higher interest-bearing ones like money markets and CD’s – to build emergency funds and pursue goals.

CONVENIENCE

  • Direct deposit and withdrawals.
  • Automatic and recurring transfers to other accounts.
  • Mobile banking – deposit a check or pay the cashier with your phone!
  • Online bill pay.
  • Do all your banking in your pajamas!
  • Free ATMs at many locations.

LONGER-TERM BENEFITS

  • You establish a relationship which can come in handy for a short-term loan, car loan, or mortgage loan. Direct deposit and auto-payments can sometimes mean lower interest rates.
  • An account at a financial institution demonstrates responsibility. True or not, managing a checking account makes us look more mature and responsible. That is attractive to lenders and potential mates.

Maybe bitcoin or some other form of virtual wealth is the way of the future, but I’m guessing it’s still pretty far down the road. In the meantime, we still have to live with the system we’ve got. Make the best of it with a checking and savings at an insured financial institution.

Author Mary Ellen Kaluza is a Certified Financial Counselor with LSS Financial Counseling.