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Over 7 million households in the U.S. don't have a bank account, according to a recent FDIC survey on American banking habits. If you're in that group, you probably know what life feels like dealing with cash on an everyday basis. Getting an account with a bank or credit union may seem unnecessary or overwhelming, but it might be just the thing to help you reach your financial goals faster and manage your money better. Read on to find out if a bank account could be a good fit for you.
What Is a Bank Account?
There are different types of bank accounts available that serve different needs for account holders. When people talk about bank accounts, they're usually referring to either a checking account or savings account:
- A checking account is a type of bank account made for handling everyday financial transactions. You can easily deposit your wages, salary or other funds into a checking account and use that money to pay bills, buy things or withdraw cash as needed. A checking account allows you to store your money in a safe place and still be able to spend it.
- A savings account is a place for you to keep your money long term. Savings accounts aren't intended to be used for everyday spending—the number of withdrawals or transfers you can make from a savings account are limited, usually to six per month. This type of account is a good place to keep your emergency fund or savings for major financial goals, and your balance may accrue interest.
Opting into "traditional" banking doesn't have to be too traditional, either. There are financial institutions to suit almost every taste and need. For example, if you want to open an account but don't want to deal with the hassle of in-person visits, then an online bank account might be a better fit. If you want to bank with an institution that aligns with your values and focuses on helping your local community, a credit union could be a perfect choice for you.
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Why Have a Bank Account?
There are quite a few benefits to having a checking account. One of the most popular is the ability to have and use a debit card, which can be helpful when you don't want to carry cash for every purchase. You can also write checks if you have an account; this may not seem like a big deal, but you might be surprised by how often you'll be asked to use or provide a check, such as paying rent. Although some people choose to use credit cards to pay for daily expenses, there is a risk of incurring fees and interest charges if you don't pay off your balance or make payments on time.
Additionally, if you have a job, most employers provide an option to deposit money directly in your account (known as direct deposit). Some government assistance programs use direct deposit to distribute benefits too. Direct deposit is convenient because you can get your money the same day it's disbursed—instead of waiting for a check to arrive in the mail, get deposited and clear. This is helpful when you're trying to pay bills and budgeting for ongoing expenses.
Moreover, having an account allows you to pay bills online and use payment apps, a lifesaver when it comes to things like managing utilities, phone payments and other regular expenses. Bank accounts provide a record of your spending, which can help you stick to a budget or catch identity theft or fraudulent purchases; they are also sometimes required when seeking a loan for big purchases like a home.
Is there a great reason not to have a bank account? The answer is no. While some bank customers might occasionally encounter issues with fees, account management or other difficulties, the benefits a checking or savings account provides clearly outweigh the risks. Having a bank or credit union account can help set you up for financial success by protecting your balance, providing easy access to it and connecting you with other financial services.
How Do Bank Accounts Protect Your Savings?
Banks and credit unions provide account holders with peace of mind that their money is safe. In fact, if you open an account at a bank or credit union, you'll be insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA) for up to a balance of $250,000 in the unlikely event the financial institution you're banking with fails.
If you're storing your cash in places aside from bank accounts, you're more vulnerable to financial emergencies. For example, if you're used to just keeping money in hiding spots at home, you don't have many options if that cash gets lost, stolen or destroyed.
Additionally, lacking a bank account could limit your borrowing options and leave you more vulnerable to predatory lenders who charge sky-high interest rates and trap people in dangerous cycles of debt.
Are Bank Accounts Free?
While it's true that some bank accounts require you to maintain a minimum balance, there are plenty of options that don't. When you open an account, make sure you ask a representative about your options and get a good understanding of any fees. That said, not having a bank account can actually cost you money. For example, without an account, you'll have to remember to make every bill payment manually—risking late fees if you don't.
If you're like most people, life gets pretty busy and it's not uncommon to miss a payment (or two) or submit a payment late. Unfortunately, paying late comes with additional fees and charges. The ability to set up automatic withdrawals is a smart way to manage money as long as you pay attention to your account balance, what's coming out and when.
Some checking accounts may come with an overdraft protection option, which means if the balance dips below zero because of withdrawals, the bank may cover the amount for a fee.
How Do You Open a Bank Account?
Before choosing a bank, there are two main things to consider: the type of account and the fees associated with that account. Make sure to talk to a bank representative if you have any questions, especially regarding potential fees and charges associated with the account.
Next, you'll need to make sure you have the required documents and information needed to open the bank account. The main items you'll need are:
- Official identification, like a driver's license, passport, state ID or military ID
- A Social Security number or Taxpayer Identification Number
- Proof of your current address, such as a utility bill or mortgage statement in your name
- Money for an initial deposit. Some banks require an initial deposit to open a checking account, but others don't. The deposits are usually relatively small, but check with a bank rep to confirm before beginning the process.
There aren't really any downsides to opening a bank account, so whether you have a lot of cash to work with or are just getting started on your financial journey, opening an account makes good financial sense.
The Bottom Line
A bank account is a place for you to deposit and withdraw funds, make payments, transfer money to another person or institution, pay bills electronically, and more. Bank accounts enable you to spend without cash on hand and get direct deposits from employers or other institutions.
Whether you decide to use an online bank, a credit union or a traditional bank, the convenience and security of bank accounts are hard to beat. Make time to explore your options to find the best fit for your financial needs. As you plan your financial future, don't forget to keep an eye on your credit report and credit score to make sure you're staying on track.