Whether you’re creating your first bank account, or you have had one for years, you may have yet to consider why it’s a good idea to have one. You recently opened one.
That subject has become more interesting now that there are alternatives for collecting cash and paying expenses. Given the potential fees and annoyances, do you really need a bank account? Continue reading to find out more about this question.
Why Should You Use a Bank?
If you’re new to banking or have lived in a country where the banking system is distrusted, you might be asking why you’d want to use a bank at all. It is undoubtedly easier than ever to avoid opening a bank account.
Prepaid debit cards allow you to purchase online and in stores, as well as pay bills and withdraw money from ATMs, just like you would with a bank account. The IRS will transfer your tax refund onto a prepaid debit card, and many businesses will do the same (though this option has many drawbacks).
KEY LESSONS
Banks are financial institutions that accept deposits as well as make loans.
Given today’s technological breakthroughs, many individuals ask if a traditional banking account is still necessary.
Online payment methods such as PayPal can be used to send money, whereas prepaid debit cards are frequently used for online shopping and ATM withdrawals.
When compared to traditional brick-and-mortar banks, some online-only banks charge lower fees and provide greater interest rates.
Online services such as PayPal and Venmo allow you to send and receive money without the need for a bank account. You can also go all-cash by cashing your paycheck at Walmart or a check-cashing store.
However, if you meet the fundamental requirements for opening a bank account, you may appreciate the many benefits of a bank, beginning with the increased security of your money.
1. Bank Safety
Keeping all of your money in cash at home is risky. Your home could be broken into. Someone who knows you and knows where you keep your money—a child, family, or friend—could steal it. Most of the places where people hide their money are well-known to burglars. Worse yet, you could be robbed while at home.
Another risk is that your money will be destroyed if your house floods or burns, and homeowner’s insurance only covers a small amount. You could even simply forget where you’ve hidden your money. Prepaid debit cards are less safe than bank accounts.
If you live check by check, the most you can ever lose or have stolen is the amount of your last salary—a number you simply cannot afford to lose if money is tight. It is critical to keep your money secure. A bank account is the most safe place to keep your money.
To date, the FDIC’s guarantee has proven to be totally dependable, even during times of financial crisis such as the 2008 recession or the savings-and-loan crisis of the 1980s and 1990s.
2. Convenience of Banking
Money in the bank, can be retrieved from anywhere—in person at your local branch, or even abroad. A checking account also makes paying bills easier and less expensive—you won’t have to visit a store, check-cashing facility, or service provider’s office.
You can use the bank’s free online bill-pay system, or if you prefer the old-fashioned and less secure method, you can write a check and mail it, which is also free except for postage. The advantages of utilizing a bank to protect your money are comparable to those of using a credit union.
3. Investing and Saving
You can cover unexpected expenses like auto repairs with money in savings, even if they don’t fit into your monthly budget. A sizable emergency fund can help you get by during a spell of unemployment. When you have several months’ worth of emergency savings, you should put any extra money into a retirement account.
You simply cannot take advantage of the possibility to gain money in the stock market or earn interest on deposits if your money is just kept under your mattress or on a prepaid debit card.
How to Select a Bank
Most folks will have no issue finding a respectable bank with a little common sense. Even large banks can collapse.
Banks have FDIC. It provides coverage of $250,000 per owner, per account. If you have a joint account with your spouse, you can have a balance of up to $500,000 insured.
If you come from a developing nation without deposit insurance and couldn’t trust that your money was safe in the bank, the US system should be a huge relief.
When it comes to banking, it’s difficult to make a huge error, but some options are better than others in terms of ease, fees, and interest rates. Here are the most important factors to consider when determining where to open a checking account.
Bank Reputation and Legitimacy
To begin with, you should utilize a recognized bank. Choosing a major, well-known bank should be a safe bet. If you’re considering a smaller institution, or if you just want to be extra secure, utilize the FDIC’s Bank Find tool.
It is more difficult to choose a bank with a good reputation. Wells Fargo dismissed 5,300 employees in 2016 after they established 2 million unlawful bank accounts for the bank’s customers to satisfy sales targets and win bonuses.
These clients were then charged fees on their accounts. The bank is currently rebranding itself as “re-established.”
These are not the only banks that have engaged in major misbehavior, but they are two of the more well-known examples. In summary, you should conduct reputation research before committing to a bank.
Banks that only operate online versus those that have physical locations.
One of the most important considerations you’ll have to make is whether to go with a bank that is fully online or one that has both a physical and online presence. Even if they began as brick-and-mortar institutions, most banks now have a strong online presence.
What are the primary distinctions between online-only banks and traditional banks where you may walk into a branch and speak with a teller? Fees and interest rates are the most common examples. Because online-only banks have minimal overhead, they can pass those savings on to customers by not charging monthly maintenance fees or requiring a minimum balance, and they can afford to provide greater interest rates on savings accounts and certificates of deposit.
However, community banks may offer the same lower-fee, higher-rate benefits as online-only banks while also allowing you to visit with a banker in person. You might be able to discover low-fee accounts with a large traditional bank, so don’t rule them out.
Consider what would make banking more convenient and comfortable for you:
- Do you prefer to interact with people in person or with machines?
- Do you make regular cash deposits? (With an online bank, this is difficult.
What works best for you to visit the bank?
Varied banks have different features, and even different checking accounts within the same bank are tailored to meet various demands. It is beneficial to compare banks before deciding on one and creating an account.
Size and location of the bank
Most people who desire a bank account want to choose one that has a branch close to where they live. If you travel regularly, you should do some research to determine which banks have locations near where you frequently find yourself. You’ll want convenient access to your money when you’re away from home, and no service fees for utilizing out-of-network ATMs.
Another important factor to consider when it comes to size is that smaller banks may provide better customer service and take a greater interest in the communities in which they operate.
If you choose an online-only bank, you will often have access to a countrywide network of fee-free ATMs. In addition, your bank may refund you for a set number of out-of-network ATM costs every month.
Banking Charges
Some banks have free services to use as long as your account balance remains positive, whilst others nickel and dime their customers at every turn. Even tiny costs can build up over time and deplete your account balance, so carefully review a bank’s charge schedule.
Even if you join up with a bank that promotes free checking, same advice applies; there are always fees someplace. Fees may apply if you allow your balance to fall below a specific level, do not have your paycheck transferred straight into your account, overdraw your account, use an ATM, request printed statements, or close your account.
Opening a Savings Account
A checking account is what you need if you primarily use your account as a source of cash and to pay bills. (If you wish to utilize your bank for money, you may also require a savings account; see below.) Except for some specific free or low-income accounts, checking accounts normally allow you to make unlimited deposits and withdrawals, unlike savings account laws that limit the number of monthly withdrawals.
Before you spend too much time picking which bank to use, be sure you qualify for a checking account. Here’s what banks often require from their customers.
Initial Deposit
The amount of money required for an opening deposit is determined by the bank and the type of account you wish to start. Many banks enable you to start an account with as little as $1, so search around if you don’t have much to deposit. A hefty starting deposit is more likely to be required with a traditional brick-and-mortar bank than at an internet bank.
Identification
In order to open an account in person, you must show identification such as 1) Social Security card 2) birth certificate, 3) passport,4) driver’s license, or 5) state identity card. To open an account online, you must submit your 1) date of birth,2) Social Security number, and 3) maybe your driver’s license number, and the bank may request copies of supporting papers.
If you are not a US resident and want to create a bank account in the US, you will be required one or two of the following:
- A photocopy of a foreign passport
- A photocopy of a foreign driver’s license
- A passport issued by a foreign state.
- A picture ID for employment
- A picture ID for college
- A photocopy of an alien registration card
- A picture permanent resident card
No Social Security Number (SSN)? You can open a bank account by providing the Internal Revenue Service with an Individual Tax Identification Number (ITIN).
Information on How to Contact
Your 1) physical address (where you live), 2) phone number, and 3) email address will all be included. Banks request all of this information in order to comply with federal rules requiring them to gather and verify identifying information for every person who opens an account.
To open a bank account, you must be 18 or older which varies by state—19 in Alabama, for example).
If you are under the age of 18, you may be allowed to register a joint account with your parent or legal guardian.