Bank on it
Why do I need a bank account?
Having a bank account is important for several reasons. For one, it is virtually impossible to obtain credit without a bank account, and at some point, everyone will have some kind of credit need. Additionally, banks are the most secure way to keep your money. As a customer, your money is covered by insurance, and in most instances, if you have to deal with lost or stolen checks or bank cards, the majority of your money will be protected. Finally, choosing the right banking services will actually earn you more money than just paying cash. Banks and credit unions offer a variety of account types to help you save and track your money. For the most basic services, you will pay only a few dollars a month to use a bank to keep and access your money.
Types of banks
| Question | Big banks | Credit unions | Check cashing and payday loans |
|---|---|---|---|
| What do they do? | Basic banking: deposits, cash, checks, loans | Basic banking: deposits, cash, checks, loans | Cash checks and provide short-term loans |
| How much do they cost? | Do your shopping! Free student checking is available through some banks and most will waive the monthly fee if you maintain a minimum balance or use direct deposit. | Credit unions are member-owned and pay no taxes so fees are generally lower, but not always. Most will waive the monthly fee if you maintain a minimum balance or use direct deposit. | High fees for check cashing and very high interest rates on loans. |
| How do they make money? | Banks make money through fees and interest charged on loans. | Credit unions make money through fees and interest charged on loans but often can offer loans at a lower rate because they pay no taxes. | They make money off of you by charging high fees for services. |
Options for personal banking
| Question | Bank Account | Reloadable Prepaid Card | Cash |
|---|---|---|---|
| How do I get cash? | Write a check, go to the ATM, go into a bank branch, or get cash back on debit purchases. | Go to the ATM, or get cash back on debit card purchases. | Check your wallet, pockets, and couch cushions |
| Can I use a free ATM? | Yes | Generally | No |
| How do I track my money? | Online, by phone, or in person. Monthly statements generated to help with balancing and budgeting | Online or by phone | Write it down |
| Can I set up text alerts for low balances, deposits, and withdrawals? | Yes | Generally | No |
| How do I pay bills and make purchases? | Mobile wallet, online bill payment, debit card, check writing, direct debit, cashier’s check or wires | Payment by card; some offer online bill pay and/or check writing. | Pay in person or purchase a money order |
| How do I add money to my account? | Mobile, online, in-person, ATM, or direct deposit | Generally through a designated retailer; some may offer direct deposit | N/A |
| Is my money insured? | Yes, bank accounts are FDIC insured for up to $250,000 | Maybe. If the card is associated with a bank it may be FDIC insured for up to $250,000 | No |
| Will my money be replaced if it is lost or stolen? | The majority of your money is generally protected | The majority of your money is generally protected | No |
| How do I cash a large check? | Your bank branch will do it but may hold funds for a few days until the check clears | You may need to go to a check cashing business | You may need to go to a check cashing business |
| Will it improve my credit score? | Yes, bank accounts contribute to your FICO credit score. | No | No |
| How much does it cost? | Monthly maintenance fees vary greatly but free student checking is available | Monthly maintenance fees vary greatly | No |
| Are there fees? | Potential overdraft fees, out-of-network ATM fees | Fee to add money to card; out-of-network ATM fees. | No |
Benefits of a bank account
- Many banks today provide the full suite of online, in-person, and mobile options and are geared to keep pace with your changing needs. Need a car loan? Banks can do it. Want to buy some Euros for your trip to France? Yep, they can help there too.
- Most bank accounts are set up with impressive online features that help you track your spending and stay on budget.
- If you are looking to build your credit, having a bank account is one of the best ways to do it. Good credit helps with more than borrowing: it can factor into everything from renting an apartment and getting a cell phone, to landing a job.
- There’s a lot to be said about being able to walk into your bank to make a cash deposit or cash a check without check cashing fees.
- If you don’t have a need for a bank branch, online banking may be an option for you. Online banks typically have lower monthly service charges and pay higher interest rates. The drawback is that you don’t have a bank branch for cash transactions.
Benefits of a reloadable prepaid card
- There’s no credit check so it’s not a problem if you have poor credit or a bad check history.
- Some, but not all, pre-paid cards work almost like a bank account. You can deposit your paycheck or financial aid directly, access convenient mobile options like bill pay and balance alerts, deposit money, and get cash from an ATM.
- If you have a tendency to overspend, prepaid cards are good for budgeting. You only have the amount you load onto the card and once it’s gone, that’s it.
- Keep bank data private – prepaid cards help maintain a barrier between identity thieves and your sensitive financial information
Benefits of cash
- Nobody knows your business.
Drawbacks of bank account
- About 7% of U.S. citizens don’t qualify for bank accounts for various reasons so they’re not available to everyone.
- Banks make a lot of money on overdraft fees so it’s important to track your spending carefully or select a bank that does not allow overdrafts.
