No law or regulation forces a person to have a bank account. It is a personal choice. Currently, about 1.23 million people in the UK lack a bank account, as do roughly 14.1 million American adults (6% of U.S. households).
The most common categories of people who are unbanked are young people and those who are unemployed. In terms of gender, women tend to be unbanked at higher rates than their male counterparts.
Given these statistics, is having a bank account a good or bad idea? Let’s dig into this controversial question.
Why Some People Don’t Own Bank Accounts
Reasons for not having a bank account can vary from person to person. However, the most common reasons for not having a bank account are shown below:
Lack of Proof of an Address – People who cannot provide proof of a physical address, often due to immigration status or homelessness, are often turned away by banks.
Fees and Other Costs – Some people perceive bank accounts as expensive to maintain.
Understandably, low-income earners are often deterred by fees, such as account maintenance or ledger fees, the cost of bounced checks, and penalties for late payments or overdraws.
Restricted Hours – Are you familiar with the terms “banking hours” or “bank holiday”? Odds are you are, because banks are notorious for having limited hours and making it difficult for people to transact during the evenings and weekends.
With new forms of payment (like cryptocurrencies) offering 24-7 access to funds, these limitations are increasingly turning off potential account holders.
Lack of Trust – Whether or not it is true, banks have a reputation for lacking transparency. In particular, they are infamous for fine print and disclosures that are advantageous to the bank, but not the account holder.
Alternative Financial Options – With the rise of financial technology (known as “fintech) services, traditional brick and mortar banks are increasingly becoming disrupted.
Examples of these alternative options include companies like PayPal, technology like cryptocurrencies, and the emergence of a diverse range of credit and debit cards that can support services like customer accounts and money transfers.
Is It a “Must” to Have a Bank Account?
Again, there is no requirement to have a bank account, but there are scenarios that could necessitate you to open one.
Here are some of the things to think about as you toss around with the idea of whether or not you want to open a bank account.
Lender Requirements
When applying for a credit service such as a mortgage, the lender will require that you provide verifiable financial information. In many countries, lenders phone your bank to verify both the existence of your account and the validity of your bank statements.
The lenders may also require that your bank verifies proof of deposit forms. Typically, verification of proof of deposit requires that borrowers provide bank statements covering the previous 2 to 3 months. Some of the information verified include account type, closed or open status, account holder name, and balance information, among other details.
Apart from mortgages, most bad credit lenders will require that you to provide bank details, as well as current and previous physical addresses, employment details, and personal details for you to get approved.
Check Cashing
While online transfers account for most of the money movements globally, some people and businesses still prefer checks as their payment method. Again, you don’t need an account to cash your check. You may opt for retailers that offer check cashing as a service, payday lenders, or even open a prepaid debit card account.
However, the biggest drawback with most non-bank check cashing services is that they are costly. On the other hand, opening a prepaid debit card account requires that you be subjected to credit checks to verify your details and creditworthiness. Having a bank account will give you additional credibility when submitting a debit card application.
Discounts on Bill Payments
According to Pockit, a digital UK current account provider with over 500,000 customers, people who do not have a bank account pay more for their bills. Whether it is energy bills, broadband or mobile data plans, people who have bank accounts stand a better chance of capitalizing on offers and deals.
For instance, many utility companies give discounts to people who pay via direct debit. Technically, you can not pay via direct debit if you don’t have a bank account. Therefore, you end up paying a premium for not having a bank account. BT and Virgin Media are examples of telecom companies that offer customers discounts for paying via direct debit.
Expenditure Records
As you journey towards financial wellness, you’ll need to ensure that you maintain accurate and up-to-date records of your cash flow to help you with planning. Having a bank account will make this process easier for you because every payment you make is automatically captured on your statement, making it easier to reconcile.
Without a bank account, you may need to keep a manual record of all your cash expenditures which is a tedious exercise and prone to error.
Plus, when tax time rolls around, this automatic record of expenditures (and potential write-offs) can come in handy.
Funds Protection
Not all financial institutions will guarantee the safety of funds when an event outside of their control happens.
However, in the UK, banks, building societies, and credit unions are among the institutions covered by the Financial Services Compensation Scheme (FSCS). This means if any of these institutions fail, the FSCS will automatically refund the victims.
Within the U.S., the Federal Deposit Insurance Corporation (FDIC) is an agency created by the Congress whose role is to provide confidence in the nation’s banking system. Currently, the FDIC insures up to $250,000 per person at an FDIC-insured bank. For jointly held accounts, you and your spouse can twice that amount ($500,000) of FDIC coverage.
Compare this with keeping your money under a mattress or drawer where your funds have no protection in the event of a loss and a bank account may start to appear more sensible.
Travel
If you’re planning to travel to another country, then exchanging your money through your bank before you go or using a local ATM one you’ve arrived can be a convenient approach. Plus, ATMs can allow you to convert your money to the local currency at all times of day.
Without a bank account, you’ll have to use a currency trader who may charge you higher fees. Currency traders also tend to have traditional hours, which could pose a challenge if you need access to your funds after hours.
To Bank Or Not to Bank
Although I don’t know for sure, at some point you will probably encounter an event that will cause you to want a bank account. This could be needing a mortgage, a car loan, bill payments, or check cashing.
While traditional banking has its limitations and not everyone can access the banking system, I hope this article has clarified the advantages and disadvantages of opening a bank account so you can make an educated decision.
What are your thoughts on banks accounts, including their pros and cons? Share them in comments below.