Access to a bank account can simplify your life and keep your finances protected. But many people choose not to have bank accounts. Suppose you have never opened an account at a bank or credit union. In that case, you may wonder, “What are the benefits of having a bank account?” Learn about the perks of a bank account, what features you can get, and how to open an account today!
What Is a Bank Account?
A bank account is an account held at a bank or credit union that allows you to deposit, withdraw, and transfer funds. There are two distinct types of bank accounts: checking and savings. Each type of bank account offers different features and benefits. A bank is typically a for-profit financial institution, while credit unions are nonprofit institutions.
Credit unions are owned by members that generally share a common bond, such as an employment industry or faith. To open an account with a credit union, consumers must pay a membership fee to take advantage of lower rates and fewer fees. On the other hand, banks work for profit, so consumers have to pay more fees and higher rates. However, banks offer more products, services, and locations. The best type of financial institution to work with depends on your preferences.
A checking account is ideal for managing your everyday transactions. Checking accounts allow consumers to deposit paychecks and other funds. You can use the money kept in a checking account by writing checks, using a debit card, or making online transactions. Financial experts advise consumers to get a checking account to safely store hard-earned money and take advantage of various benefits.
A savings account allows you to store your money for long periods. Savings accounts reward you with interest payments for keeping your money secure. Interest payments are based on the total account balance. A savings account is ideal if you want to save up for a large purchase or build an emergency fund. Most financial institutions limit withdrawals from a savings account, so you may only be able to make six transfers per month.
What Are the Benefits of a Bank Account?
Checking accounts offer many benefits for account holders. If you do not have a bank account, then you are missing out on convenient features and services. Checking account advantages are detailed below.
Your Money Is Insured
While there are ways to store money without a bank account, they are not secure. Many people who do not have a bank account keep their money at home. But in the event of a house fire, natural disaster, or burglary, you can lose all of your life savings! A bank account keeps your money protected against damage and theft.
The Federal Deposit Insurance Corporation (FDIC) is an agency that provides deposit insurance to depositors in the United States. Many financial institutions are FDIC-insured, which means that an account holder has financial protection against bank failures and disasters. Many digital wallets do not offer FDIC protection, so you can lose every cent you keep in there!
Identity theft is a growing problem in America, but you gain fraud protection with a bank account. Under Federal Reserve Regulation E, banks and credit unions must provide reimbursement for fraud losses from unauthorized electronic transfers. However, account holders must inform the financial institution within 60 days to get a refund.
Access to a checking account allows you to receive a direct deposit in as little as one business day. If you currently cash checks, you may have to pay check-cashing fees at a check-cashing store or retailer. But you can avoid paying check cashing fees with bank accounts!
If you ever need emergency cash, you may have trouble qualifying for online quick cash loans without a financial account. Lenders typically disperse funding through a direct deposit, so you may be ineligible if you don’t have an active checking or savings account.
Making online purchases is super easy for consumers that have bank accounts. Once you open a checking account, you will receive a debit card that allows you to make transactions with ease. While there are ways to order online without a debit card, those methods may offer little financial protection. If your bank is FDIC-insured, you can get reimbursement in the event of an unauthorized online transaction.
Ability to Transfer Funds
You may have to transfer money to reimburse friends and family members. Unfortunately, you must rely on cash or digital wallets if you don’t have a bank account. It’s easy to lose cash, and your digital wallet may not be as secure as you think. Many people use Cash App to transfer funds, but the mobile payment service does not offer buyer protection. So if you fall victim to a scam or your account gets hacked, you lose all of your money. A bank account allows you to safely transfer money and accept payments.
You can stay informed of transactions when you keep your money in a bank. Many financial institutions offer mobile alerts that notify you of transactions, low balances, and spending limits. Bank alerts can help you avoid overdrafts and returned payment fees. In addition, you can know right away if your account is compromised by getting alerts about suspicious account activity.
Common Bank Fees You Should Know
While there are a lot of benefits that customers gain with a bank account, there are also cons. Banks often have a lot of fees, but knowing what those fees are can help you avoid unnecessary charges!
- Service Fee – Some banks charge monthly fees for maintenance services. Service fees typically range from $4 to $25. Open an account with a no-fee bank or maintain a minimum balance to avoid service fees.
- Out-of-Network ATM Fee – You do not have to pay a fee to withdraw cash from an ATM in your bank’s network. However, on average, you may have to pay $2.50 to use an out-of-network ATM. Use fee-free ATMs to avoid extra charges or sign up for a checking account that reimburses out-of-network ATM fees.
- Excessive Transactions Fee – Withdrawing or transferring money from savings accounts more than six times a month will result in an excess transaction fee. Exceeding the federal limit can result in a $3 to $25 fee per transaction. Using your checking account for spending can help you avoid excessive transaction fees.
- Overdraft Fee – Spending more money than you have in your checking account will result in an overdraft fee. Many banks offer overdraft protection for $35 on average per overdraft. Keeping track of your current balance and opting out of overdraft protection can help you avoid overdraft fees.
- Insufficient Fund Fee – The bank will charge an insufficient fund fee when you don’t have overdraft protection and spend more than your available balance. Insufficient fund fees are typically up to $35 per transaction. Signing up for low-balance alerts can help you avoid having insufficient funds.
- Wire Transfer Fee – Wire transfers are convenient when you need to transfer money quickly, but they can cost a pretty penny. Most banks charge between $16 to $35 for domestic and international transfers. Making transfers online or through the bank’s mobile app can prevent wire transfer fees.
- Early Account Closing Fee – You may have to pay an early account closing fee if your bank requires a specific timeframe for active accounts. Banks typically require accounts to stay open for at least 90 or 180 days. If the account is closed early, you may have to pay an early account closing fee of up to $25.
How Do I Open a Bank Account?
Opening a bank account is quick and easy! You can start taking advantage of great features and services right away. You can complete the application process online or at your local branch.
Before you apply for a checking or savings account, consider the fees you will have to pay. Some banks charge more fees than others, so look for no-fee checking accounts to save money. If you prefer to use cash, look for a bank that has convenient ATM locations or covers out-of-network ATM fees.
Certain financial institutions require customers to provide a minimum initial deposit to open an account. The amount of an initial deposit typically ranges from $25 to $100. If you don’t want to keep much money in your account right away, you can apply with a bank that does not require an opening deposit.
To open a bank account, you will typically need the following:
- A government-issued photo ID (driver’s license or state ID)
- Basic personal information (name, date of birth, phone number, etc.)
- Social Security number (SSN) or Taxpayer Identification Number (ITIN)
- An initial deposit (if required by the bank)
The Bottom Line: Benefits of Having A Bank Account
A bank account helps keep your money secure and accessible. Individuals with no bank account typically lose money on check-cashing fees. You can avoid paying unnecessary money for depositing or withdrawing money with a checking account!