In some previous posts we have discussed the need to create a budget or how to reduce your time to retirement by saving more. Those items come naturally to us, so we felt a little silly writing them. Well, this next topic, also seems natural to us. But with the proliferation of pay-day loan establishments, it seems that many people are being advised to not open a bank account. So here is a basic primer of why you should have a bank account:
Why is it a problem to not have a bank account?
Banking is a personal preference. Some people prefer to not have an account because their parents never had one and the idea of going to start one seems foreign and an inconvenience. Maybe they have a fear of putting their money into an institution and not having it at a moment’s notice. Here are the problems that arise from not having a bank account:
- Your money earns 0% interest, which means it is constantly losing it’s value to inflation. Granted, the amount that you can earn in a standard savings account is only a little more than this, but you protect yourself minimally against inflation. Online savings accounts offer a better alternative. (More on that later)
- You have no banking relationship, which means that one day if you want a loan to purchase a house or a car you have no way of proving that you are trustworthy with the bank’s money.
- Fees upon fees upon fees. Those who live without a bank account tend to rely on Pay-Day loan establishments to cash their paychecks and then they purchase prepaid giftcards to pay for their bills (most of which cannot be paid for with cash). While prepaid giftcards have helped us with our travel hacking, it is a planned expense that we allot for in our travel budget. One reporter, Lisa Choi, lived for a month without her bank account and estimated upwards of $100 in fees each month from that lifestyle.
- Security & Security. Keeping liquid cash on hand is just plain risky from a security point of view. Once you reach a certain threshold, whether consciously or not, you will be more likely to spend that cash. No bank to securely save it, it’s likely being spent on items that you haven’t budgeted for.
Ultimately those who live without a bank account end up paying more in the long run.
Keeping liquid cash on hand is just plain risky from a security point of view
“But not everyone can afford a bank account…”
That excuse is rubbish. Here’s why:
- One of the most common reasons provided by Pay-Day loan establishments in the form of marketing and propoganda is that bank accounts are expensive. Obviously it hurts their business when someone has a bank account because they are no longer providing a service of cashing a paycheck, providing money orders for bills, and because money is stored in accounts, it leaves their customers with less of a need for a pay-day loan.
- Banks do have fee structures. They usually require a minimum deposit ($100-$250) and have maintenance fees of checking accounts. However, if you maintain a minimum amount in your account, you can usually avoid these fees. The Winning Williams have NEVER paid a single bank fee. We read through the fine print, we asked the necessary questions and have avoided any potential fees.
- Part of budgeting requires pre-planning. This pre-planning includes making sure that there is enough in the bank account to avoid any overdraft fees. Living without a bank account means that when the money runs out, it runs out. With a bank you can enable overdraft protection which means that once you spent everything in your checking account you can pull from your savings account to cover the difference. Just be sure to replenish your checking account before the monthly statement comes or you risk a fee.
You should never have to pay a fee for your money.
For those that live paycheck-to-paycheck this can seem daunting at first. But recall, living without a bank and relying on Pay-Day loan establishments can result in upwards of $100 in fees per month. You should never have to pay a fee for your money. There are simple ways to avoid paying a fee when you have a bank account, you can’t avoid the fees when you rely on Pay-Day loan establishments.
When there are no big banks in the community
While Bank of America, Chase, Citi and other nation-wide banks may seem to be on every corner in some areas, there are others where they are scarce. These communities tend to see more Pay-Day loan establishments to meet the demand for financial services in the area. Fortunately there are great alternatives:
- Local Credit Unions– Not only are they more grounded in the community that they serve, but they offer every service and benefit that a standard bank would offer and can often provide better interest rates and lower fee accounts. While they may not have a variety of convenient locations, usually you can find several ATMs that operate in conjunction with multiple credit unions to provide easy access to your account. If you are considering opening a bank account or a credit union account, review these articles to get a better understanding of the differences. Be sure to do research on all of your local options:
- Online Banks– With the dawn of the internet has come the rise of online banks and online banking accounts. This is something that we actually use to earn higher interest rates on our savings accounts (4%+ guaranteed). Because online banks don’t have the overhead costs of a brick-and-mortar bank, they can offer better fee structures and provide better interest rates. There are some banks that are 100% online, such as Ally. Or you can find online accounts through traditional banks as well.
Predatory Tactics of Pay-Day Loan Establishments
If all of the benefits and minimal costs of having a bank account haven’t convinced you, then perhaps the hard truth about pay-day loan businesses will. Effectively, they make money off of the fact that consumers are in dire straights. A quick search reveals multiple public announcements, explanations are warnings from the FTC (Federal Trade Commission) with recommendations on how to avoid using Pay-Day loan services all together. They have even filed cases against the businesses using predatory tactics to bully consumers out of their money.
If you have read through all of this and are now convinced that you should get a bank account- great! Be sure to do some research on banks in your area to find out which ones are the most convenient for you based on where you live, work, shop and what their fee schedules are so that you know how to avoid those fees. We hope that this has empowered you to take a step into banking and leave the pay-day loan services behind for good. It’s your money, you should be able to take ownership of it so that you can take steps towards financial independence!