The importance of a bank account cannot be dismissed.
Most people conduct financial transactions on a daily basis. Whether it’s buying groceries, grabbing a quick lunch, paying a cell phone bill or purchasing gas; the importance of a bank account is immeasurable.
People without a bank account typically conduct financial transactions with alternative financial services according to a 2015 FDIC National Survey of Unbanked and Underbanked Households.
Alternative financial services include nonbank money orders, check cashing stores, prepaid debit cards, international remittances, payday loans, refund anticipation loans, rent-to-own services, pawn shop loans, or auto title loans.
The Center for Financial Services Innovation estimates consumers lacking access to traditional financial services in the U.S. spent approximately $173 billion in fees and interest during 2016 to borrow, spend, save, and plan.
The average full-time worker without a bank account can spend $40,000 over the course of his or her lifetime just to cash paychecks.
Imagine what it would mean if those costs could be avoided. That’s the importance of a bank account. You save money plus a variety of other benefits to having a bank account.
9 Facts about the importance of a bank account
1. Generate wealth over a life time.
An average full-time worker without a bank account can spend up to $40,000 over the course of a lifetime on alternative financial services. But if that same worker had a free checking account, saved the extra money in a high-interest savings account along with investing into a low-cost exchange-traded fund with a discount broker, they could generate as much as $360,000 in wealth over his 40-year career. A prepaid card cannot help you save or invest money.
2. Save money by not having to use prepaid debit cards.
Prepaid cards can be a solution to people without a traditional bank account, however, they can be an expensive solution. Prepaid cards often charge monthly fees, activation fees, fees to get cash, fees for customer service, reloading fees, bill payment fees, ATM withdrawal fees, overdraft fees, and more. Unlike a debit card, though, you can spend only the amount of money that you put in the prepaid card account. Here is a quick look at 3 major prepaid debit cards and the associated fees.
3. Money in a bank account is insured.
Consumer bank accounts at federally insured institutions are subject to protection under the FDIC’s standard deposit insurance. The FDIC covers up to $250,000 per person, for each account ownership category. Consumers with a bank account have the peace of mind knowing their deposits are safe up to the FDIC coverage limit.
4. Many banks offer monthly fee-free accounts.
Finding a free bank account is relatively easy in today’s banking industry – there are even bank accounts for bad credit. Online banks typically don’t have big networks of brick-and-mortar branches, and their costs tend to be lower than large national banks. Many online banks don’t charge a monthly maintenance fee. Consumers without a bank account often end up paying a percentage of their paycheck to get it cashed.
Plus, many unbanked people purchase money orders for basic needs like rent, car payment, cell phone or cable bill. Money orders come with a fee too. By opening an account with a bank you can avoid these costs and even set up direct deposit through your employer to avoid the physical process all together.
5. Bank accounts are convenient.
There are many benefits to a bank account but convenience is a major plus. If you’re conducting financial transactions without a bank account you may have experienced the hassle of a check cashing store or loading money onto a prepaid card. The Center for Financial Services Innovation (CFSI) conducted a one-day simulation as to what unbanked people may encounter when trying to conduct basic financial transactions like cash a check, pay rent and utilities. The group included entrepreneurs, nonprofit employees, and banking executives.
The study discovered a huge amount of time was spent waiting in lines at check cashing stores to cash checks, load prepaid cards, purchase money orders or complete money transfers. Even if you open an online bank account, the convenience of free bill pay directly from your bank account’s dashboard will save you time and money. Also, with a bank account, you can write checks or even set up automated bill pay.
6. Bank debit cards are convenient and safe.
Carrying around cash makes sense in some instance, but making cash payments is not always safe or convenient. Using a debit card gives you an automatic receipt for all transactions. It is easy to track where and when you spend money or pay a bill when you use a debit card. Bank debit cards can generally be used anywhere for purchases without fees.
But a prepaid card like the Akimbo Prepaid Mastercard charges .99 cents for each of the first five purchase transactions using a PIN per month. Prepaid card fees can get expensive.
Unlike a bank, which holds Federal Deposit Insurance Corporation (FDIC) insurance that protects your deposits up to $250,000, a prepaid card doesn’t have that same safety net.
With a bank account debit card, consumers enjoy many protections, for instance:
- Lost or stolen card reported before unauthorized transactions: zero liability.
- Lost or stolen card reported within two days: $50 liability limit.
- Lost or stolen card reported within 60 days: $500 liability limit.
- After 60 days: no protection.
- If your card is not physically lost or stolen, you have 60 days to report fraudulent transactions with zero liability.
- If only your card is stolen, the 60 days start from the date of the statement on which a fraudulent transaction appears.
Prepaid card issuers offer voluntary protections that they can withhold at will. If the company goes out of business your money may be at risk.
More protections for prepaid debit cards should go into effect in April 1, 2019. I say should because the Prepaid Card Rule has been delayed several times. The rule was scheduled to go into effect in 2017, but the Consumer Financial Protection Bureau (CFPB) postponed it until April 2018. Then, on January 25, 2018, the CFPB announced it was delaying the rule’s effective date again—until April 1, 2019.
7. Money management and budgeting tools.
Withdrawals and purchases are automatically tracked on bank accounts, and you can receive a report of your spending accounts via a monthly statement. This is an excellent way to see exactly where your money goes each month, and from there you can fine-tune your personal budgeting habits. Plus, new online banking systems make it even easier to see and organize purchase history from your desktop or mobile device.
8. Build a banking relationship.
As your finances grow and perhaps even your family, you may want to make big purchases such as a house or car. – this is a major point in the importance of a bank account. You may even have a small business that could benefit from a business line of credit or loan. Most banks offer a variety of financial products that can benefit your goals and endeavors. When you build a relationship with your bank you establish a trust relationship.
Your bank trusts you to meet your financial obligations, and you trust them to meet your financial needs. When you don’t have a bank account, any additional financial services or products you may need becomes much harder to obtain.
9. Meet savings and investment goals with a bank account.
A savings account can be a convenient place to stash and grow your money. High-yield savings accounts along with certificate of deposit and money market accounts are just a few interest-bearing accounts offered only at a banking institution. Prepaid debit cards do nothing to help you grow your money. Some banks also offer access to more sophisticated investment vehicles such as stocks and bonds, mutual funds, retirement accounts, annuities, and more.
Final thoughts on the importance of a bank account
There’s really no comparison when it comes to the importance of a bank account. From the safety and convenience a bank offers you to the opportunity to build a banking relationship and take advantage of ways to grow your money, having bank account is tantamount to building and maintaining wealth.
If you want to open a bank account you’ll only need a few items to do so:
Photo identification. You’ll need a government-issued ID such as your driver’s license or passport. Some banks may also require secondary identification such as a credit card or a utility bill.
Social Security number. Most banks still require your Social Security number or a Taxpayer Identification Number that you get from the Internal Revenue Service.
Other personal information. This will include your date of birth, physical address, phone number, and perhaps your email address.
Initial deposit. You’ll only need this right away if your bank requires a minimum amount to open an account. You can usually fund your new account with a check, debit or credit card, or money order.
What kind of bank account do I need?
Start with the basics like a checking and savings account. The checking account is mainly for your daily financial transactions. It’s the most liquid kind of account, meaning you’ll be putting money in and taking money out fairly frequently. It will be easy to access via your debit card, ATM, or checks.
A savings account is for emergency funds or short-term savings goals. Make sure you find a high-yield savings account as the national average savings rate is currently pretty low at 0.09 percent. When you’re ready to look at investment products like Certificate of Deposits, Mutual Funds or IRAs you can do a little research and contact your banker for options and advice.
While it is true that less-than-perfect credit can make it more difficult to open a checking account, it is not necessarily impossible. From starting with a savings account to considering credit unions, there are several steps you can take to increase your chances of getting a checking account with bad credit.
In cases where you have a negative banking record in ChexSystems or Early Warning Services, second chance banking can get you back to a traditional financial institution. You don’t have to be locked out of banking due to bad credit either. There are plenty of banks for bad credit that will give your a fresh start.