Consumer banking in the United States has evolved significantly, shaped by key historical developments, technological innovations, and shifting consumer behaviors.

A brief history of consumer banking

The roots of consumer banking in the U.S. can be traced back to the late 18th century, after the American Revolution, when the nation’s first central bank, the First Bank of the United States, was established in 1791 to support the new nation’s economy. Before this, during the colonial period (1607–1776), financial practices were informal, relying on bartering, commodity money, and local credit systems. The modern concept of consumer banking, with accessible products like savings accounts, loans, and checking accounts, emerged in the late 19th and early 20th centuries.

A significant turning point came with the establishment of the Federal Reserve in 1913. This created a central banking system designed to regulate banks and stabilize the financial system. The Great Depression further influenced banking by introducing federal deposit insurance to protect consumer deposits. After World War II, the U.S. economy boomed, and consumer banking services expanded rapidly, helping Americans access home loans and credit to fuel their pursuit of the American Dream.

The introduction of credit cards in the 1950s revolutionized consumer spending, allowing individuals to borrow money for immediate purchases and repay it over time. The deregulation of the banking sector in the 1980s and 1990s facilitated further innovation, leading to today’s digital-first landscape, where online banking and fintech solutions dominate.

Key consumer banking services

Consumer banking offers a wide range of services catering to the diverse financial needs of individuals.

• Checking and savings accounts. Checking accounts provide easy access to funds for daily transactions, such as bill payments and withdrawals. In contrast, savings accounts allow consumers to set aside money for future needs and earn interest. These are the foundational products of any consumer banking relationship.
• Certificates of deposit (CDs). CDs offer a low-risk investment for consumers who want to earn a higher interest rate than what is offered in a savings account. However, they require a fixed deposit period, during which withdrawing funds typically incurs a penalty.
• Credit cards. Credit cards are an essential tool in consumer banking, offering short-term loans that consumers can use to make purchases. While they provide convenience, credit cards must be managed responsibly to avoid high-interest debt.
• Loans and mortgages. Consumer loans and mortgages are among the most important services offered by banks. Loans help individuals finance everything from cars to home renovations, while mortgages are crucial for those looking to buy a home.
• Investment products. Many banks offer a variety of investment products, including mutual funds, exchange-traded funds (ETFs), and retirement accounts like IRAs. These products allow consumers to grow wealth and save for long-term goals like retirement.
• Insurance products. Some banks provide access to insurance products like life, auto, and homeowners insurance. These products offer consumers a way to protect themselves and their assets from unforeseen events.

Current trends in consumer banking

The banking industry has undergone profound changes in recent years due to the rapid adoption of technology and changing consumer expectations.

• Digital banking. With the rise of smartphones and internet access, consumers increasingly opt for online and mobile banking services. This shift allows for instant transactions, mobile check deposits, and 24/7 access to accounts. Many traditional banks now offer robust digital platforms, while digital-only “neobanks” provide simplified, low-fee or fee-free banking experiences without physical branches.
• Fintech integration. Financial technology (fintech) companies are revolutionizing consumer finance. They offer peer-to-peer payments, digital wallets, simplified investing, and credit management tools. This pushes traditional banks to innovate and integrate fintech solutions into their own platforms.
• Open banking. Open banking is an emerging trend that allows consumers to share their financial data with third-party providers through secure APIs. This creates more competition, fosters innovation, and leads to personalized banking services. It also enables consumers to use multiple financial products seamlessly across different platforms.
• Personalized banking. Data analytics and artificial intelligence (AI) are transforming the way banks offer services. Banks can use advanced data tools to create customized offers and recommendations tailored to individual spending habits, financial goals, and behaviors. This shift towards personalization helps consumers make better financial decisions and strengthens their relationship with their banks.
• Environmental, social, and governance (ESG) focus. Increasingly, consumers are considering the social and environmental impact of their banking choices. Many banks now offer ESG investment options or align themselves with sustainable practices to attract eco-conscious consumers.

Challenges facing the consumer banking sector

Despite technological advancements, the consumer banking sector faces several pressing challenges:

• Cybersecurity and data protection. As more consumers move online, cybersecurity threats loom larger. Banks are frequent targets for cybercriminals, and breaches can compromise sensitive personal information, eroding consumer trust. To combat this, banks must invest heavily in security infrastructure, including encryption, two-factor authentication, and real-time fraud monitoring.
• Financial inclusion. Although consumer banking has become more accessible, millions of Americans remain unbanked or underbanked. Factors such as lack of trust in financial institutions, high fees, and insufficient identification can prevent people from accessing banking services. Bridging this gap is a priority for banks aiming to serve all demographics.
• Regulatory compliance. Banks must navigate an increasingly complex regulatory landscape. In addition to complying with long-standing rules, like the Truth in Lending Act (TILA) and Fair Credit Reporting Act (FCRA), banks must also stay current with data privacy laws and anti-money laundering (AML) regulations. Balancing compliance with the need for innovation is a delicate act.
• Economic uncertainty. Interest rate fluctuations, inflation, and economic recessions significantly impact the consumer banking sector. As the economy faces global uncertainties, including those related to the COVID-19 pandemic and geopolitical instability, banks must remain agile and prepared for the financial challenges of these changes.

The future of consumer banking

The future of consumer banking in the U.S. will likely be shaped by continued technological innovation, increased personalization, and a growing emphasis on financial wellness. Banks must adopt cutting-edge technologies like blockchain, AI, and machine learning to offer more secure and efficient services. At the same time, consumers will expect seamless, personalized experiences that cater to their individual financial needs.

In this evolving landscape, banks must prioritize responsible lending practices and financial literacy, ensuring customers have the tools and knowledge to manage their finances effectively. Additionally, as sustainability becomes more important for consumers, banks that integrate ESG principles into their operations and offerings will stand out.

Consumer banking in the United States has come a long way, adapting to technological advancements and shifting consumer preferences. From traditional savings accounts to cutting-edge digital banking platforms, the industry continues to evolve in response to new challenges and opportunities. As we look toward the future, banks must embrace innovation, prioritize cybersecurity, and address financial inclusion to remain relevant in an increasingly digital world.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.

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Most Americans take having a bank account for granted. It’s not unusual to have multiple bank accounts. A bank account keeps money safe and easily accessible. It also can be a gateway to a variety of other financial services. 

Credit Sesame asked over 1,500 adults about their banking habits, and 98%of respondents had at least one bank account. The 2% exception represents millions of adult Americans more likely to be lower-income consumers. This number tallies with figures from the Federal Deposit Insurance Corporation (FDIC), which reports that in 2021, 4.5% of U.S. households were unbanked.

What does it mean to be unbanked?

The term “unbanked” is used to describe adults who do not have a bank account. Poverty itself is not a barrier to having a bank account and most low-income Americans have bank accounts. So why do some people remain unbanked?

Credit Sesame grouped respondents into three income tiers:

• $50,000 or less
• $50,000 to $100,000
• $100,000 or more

The chart shows the percentage of each income group that is unbanked.

The lowest income group members are fifteen times as likely to be unbanked as the highest income earners.

Why do people choose to be unbanked?

Historically, poorer neighborhoods had fewer bank branches. However, online banking has broken down that geographic barrier. It’s worth noting that the survey was conducted online. Anyone with access to the survey should also have access to a bank. And yet, some respondents remain unbanked. Reasons given for remaining unbanked include:

• Cannot meet minimum balance requirements. But there are many banks with no minimum balance requirement. 
• Do not trust banks. But bank deposits of up to $250,000 are protected by federal insurance.
• Prefer to keep money in cash. But cash is vulnerable to theft or loss. It is bulky and inconvenient and no longer acceptable in many retail outlets.
• Spouse or partner has a bank account. But this means you have to rely on the goodwill and time of your partner if you need a bank account.

Disadvantages of being unbanked

Not having access to traditional banking services (including online banking) can have several disadvantages:

• Limited access to credit. Without a bank account, it can be difficult to obtain credit or loans from traditional financial institutions. This can make it challenging to make large purchases or invest in a business.
• Higher transaction fees. Unbanked individuals often have to rely on check-cashing services, money orders, or prepaid debit cards to manage their finances, which can come with high fees and charges.
• Limited financial services. Banks and credit unions offer a range of financial services, including savings and checking accounts, retirement accounts, and investment products. Without access to these services, unbanked individuals may miss out on opportunities to grow their wealth.
• Increased risk of theft. Keeping cash on hand can make individuals more vulnerable to theft and fraud, as there are fewer protections in place to safeguard their money.
• Difficulty paying bills. Without a bank account, paying bills can be more difficult and time-consuming. Unbanked individuals may have to rely on money orders or pay in person, which can be inconvenient and may incur additional fees.

Saving without a bank account

Nearly twice as many lower-income respondents with bank accounts have savings compared to unbanked respondents.

And banked respondents in the lower-income bracket had on average ten times more funds saved than unbanked respondents.

What is being done to decrease the unbanked population?

The unbanked in the US include individuals from low-income households, minority communities, rural areas, immigrants , young adults and unemployed or underemployed individuals. In the 21st century, unbanked individuals are considered to be at a disadvantage for the reasons given. Several initiatives aim to increase access to banking in the United States.

• Bank On. Bank On is a national program that promotes access to safe and affordable bank accounts. Participating banks and credit unions offer low-cost accounts with no overdraft fees, making them more accessible to low-income individuals.
• Community Reinvestment Act (CRA). The CRA encourages banks to invest in their local communities by providing credit and financial services to underserved areas. Banks are evaluated on their performance in meeting the credit needs of low- and moderate-income neighborhoods.
• Mobile banking. Many banks now offer mobile banking apps that allow customers to manage their accounts using their smartphones. This can make banking more accessible to people who may have difficulty accessing physical bank branches.
• Financial education. Financial education programs can help individuals understand the benefits of banking and how to manage their finances. These programs may be offered by banks, non-profit organizations, or government agencies.
• Partnerships between banks and non-profits. Some banks have formed partnerships with non-profit organizations to provide banking services to underserved communities. These partnerships may involve financial education programs, credit counseling, or assistance with opening bank accounts.

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Survey methodology

The Credit Sesame Credit Health and Financial Fitness Survey December 2022 was designed and executed by Credit Sesame using the WebEngage survey tool. The survey sample comprised over 1,500 Credit Sesame members with a credit score distribution resembling the U.S. general population. In aggregate the sample data is accurate with a 2.5% margin of error using a 95% confidence level.

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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It may make sense to stick with a checking account you’ve had for years to pay bills. A bank insured by the FDIC is a good place to put your money. But inertia isn’t a good thing when it comes to your savings. Is your bank keeping up with rising interest rates for savings in 2023? If your bank isn’t raising its interest rate on deposits, you may want to check out alternatives. Just like comparing insurance quotes every year, it’s a good idea to shop for the best savings account annually.

Interest rates are rising

As of early January 2023, the average high-yield savings account rate was around 3.30% APY (annual percentage yield). That’s up from an average of 0.5% APY earlier in 2022.

The Federal Deposit Insurance Corporation, or FDIC, reports that the national average savings account rate is 0.30% as of Dec. 19, 2022.  That includes high-yield and traditional savings accounts, which lag in interest rate hikes. Online banks offer the best high-yield savings account rates.

Here’s an example of how much of a difference a higher savings account interest rate can affect your money.

• $1,000 starting balance
• $100 per month added
• $2,200 total saved

Why rates change

The Federal Reserve raised the target federal funds rate by 0.50% in mid-December in its continuing effort to lower inflation. It was the seventh consecutive rate hike in 2022, for a total hike of 4%. Interest rates haven’t been this high since December 2007.

The federal funds rate is 4.25% to 4.50%, and usually causes banks to raise rates on savings accounts and other interest-bearing accounts they offer. Credit card holders who carry balances and mortgage debt, among other types of loans, usually suffer when rates rise. Savings account holders, however, benefit.

The APY on a savings account is variable, so any changes can be temporary.

More rate increases projected

The target federal funds rate rise by the Fed in December was its seventh consecutive interest rate hike. The group within the Fed that makes interest rate decisions expects rates to rise to 4.6% this year.

Reuters reports that a majority of economists polled projected a slightly higher increase. They forecast that in the first quarter of 2023 it could peak at 4.50%-4.75%.

The Fed can change its mind, of course, if inflation slows down and other economic conditions change. But as Credit Sesame reported earlier, Federal Reserve Chairman Jerome Powell has said rates might exceed projections.

There’s room for rates to go higher

While experts have projected higher rates, other factors also point to interest rates not being as high as they could be. Even after rising 4% last year, the Fed rate has averaged 4.89% over the last 50 years, the Credit Sesame analysis found that a 1% additional increase would get the rate back to that average.

Historically, interest rates are higher than inflation. Over the past 50 years, the Fed rate averaged 0.91% above the growth rate in the Consumer Price Index, by which inflation is measured. The annual inflation rate in the U.S. for the 12 months ended November 2022 is 7.1% The Fed rate would have to about double just to meet the inflation rate, or inflation would have to drop.

Good time to start an emergency fund

If you don’t have an emergency fund, a high-yield savings account at a time when interest rates are rising is a good time to start one.

A good rule of thumb is to have 12 months of living expenses in an emergency fund, though you may be okay with three to six months of savings if you’re married and only one earner in the family loses their job. But even with two people fully employed, emergencies can be difficult to pay for without an emergency fund.

Open a new savings account in 2023 and save for short-term goals

If you already have a solid emergency fund, then high-yield savings accounts can be good places to save for short-term goals too. An upcoming vacation, car or home down payment, Christmas fund, or a big-ticket item such as replacing a refrigerator that’s on its last legs are all expenses you may want to save for.

You can set your savings goals as far out as you want to. Savings accounts are generally safe, risk-free accounts that offer liquidity so that you can withdraw from them whenever you need to without paying a penalty. You may have to tie your money up for a year or longer for higher interest rates.

Other accounts such as certificates of deposit, money market accounts, IRAs and investments in the stock market can pay higher returns, but they can be more volatile and charge fees for withdrawing funds before a set maturation date.

If you’re saving to buy something within a year, or are preparing for emergencies that can happen at anytime, then you probably don’t want to give some of your savings away in bank fees for an early withdrawal.

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According to a recently-released FDIC report, nearly 6 million American households are considered “unbanked.” This means that no one in those households has a bank account.

The report, the FDIC Survey of Unbanked and Underbanked Households examines access to banking and the alternatives to bank accounts that some people use. It also looks at attitudes towards banks and other factors that affect whether people remain without a bank account.

A disturbing impression that emerges from the report is that people often don’t have good reasons for avoiding banks. In many cases, not having a bank account stems from misinformation or outdated social barriers.

This is a problem because the expensive alternatives unbanked households use to make and receive payments can make a difficult financial situation worse.

What’s keeping some households from using a bank account? Is it in their interests to overcome the barrier to open bank accounts?

The survey found several reasons people gave for why they didn’t use a bank. Lack of trust in banks was one reason, but there are other reasons, too.

Minimum balance requirements

The minimum balance requirement was the most frequently-cited reason people gave for not having a bank account. 40.1% of survey respondents said it was one of the reasons they didn’t use a bank, and 21.7% said it was their main reason.

A minimum balance requirement means you have to deposit a certain amount in order to open an account. They often require that you keep at least a given dollar amount in the account at all times.

Certainly, the minimum balance requirements of some balance requirements are out of reach of many Americans. After all, there are cases where those requirements can run into the thousands of dollars. It’s hard for some households to scrape together that amount of money at any one time, let alone keep that amount in the account throughout their normal pattern of paying bills and meeting other expenses.

Why it’s time to rethink this reason

Bank accounts with high minimum balance requirements are the exception, not the rule. Generally speaking, minimum balance requirements are more reasonable – or non-existent. Online banking has lowered the cost structure of many banks. It costs a lot less to manage accounts through the internet than it does to maintain an extensive network of physical branches. In many cases, banks have passed this lower cost on to customers. Accounts with little or no balance requirement are plentiful these days, so minimum requirements should not prevent someone from having a bank account.

Lack of trust in banks

The FDIC survey found this concern expressed in a couple different ways. 34.1% of respondents cited privacy as one of the reasons they don’t want to have a bank account. 33.0% said they didn’t trust banks.

Over the years, there have been some high-profile cases of banks taking advantage of their customers. That may contribute to some people’s perception of banks as untrustworthy. Also, being unfamiliar with banking can make people suspicious of banks. It can be a hard habit to break.

Why it’s time to rethink this reason

While there have been cases of wrongdoing by banks, those are relatively rare when compared to the thousands of banks and millions of customers involved. Also, banking is a very highly regulated industry. Part of that regulatory structure is FDIC insurance that covers depositors for up to $250,000 at any bank should the bank fail.

It’s also worth noting that as an alternative to banks, people often use things like payday lenders and check-cashing services. It’s worth remembering that banks are heavily regulated so a lack of trust in banks is no longer a good reason to remain unbanked.

Bank fees

Bank fees can come in many different forms. Maintenance fees may be charged every month, regardless of how you use the account. There may be a fee every time you use an ATM outside your bank’s network. Overdraft fees have gotten a lot of attention lately, because they can be especially expensive.

Those fees can be a particularly big burden on poorer customers with relatively low bank balances. Nobody wants to deposit money in a bank just to see the bank steadily take it away in the form of fees.

Why it’s time to rethink this reason

Many online banks don’t charge maintenance fees. This is especially important, because other fees can typically be avoided by developing good banking habits. This includes things like making sure to use ATMs that are within your bank’s network and taking care not to overdraft your account.

So, to a large extent bank fees can often be avoided if you choose the right bank and use your account carefully. Even when bank fees can’t be avoided, they are often cheaper than alternatives like check-cashing services and payday loans.

Bank branch location

15.4% of survey respondents said one reason they don’t have a bank account is that branch locations are not convenient. That’s understandable. Rural and inner city areas have long been underserved by bank branches. That problem isn’t getting any better as the total number of bank branches has steadily declined over the past decade.

Why it’s time to rethink this reason

With online banking, access to your account can be as near as your desktop or mobile device. This can be a great equalizer in taking away the barrier of location to give more Americans access to banking.

Ethnicity is a bigger barrier than income

Income is a big factor in whether people are unbanked. People with incomes under $15,000 are the least likely to have a bank account, and the percentage of the unbanked population declines as income levels rise.

Ethnicity plays an even greater role than income in determining who is unbanked. At every income level, unbanked rates are much higher for Black and Hispanic people than for White ones. Overall, 11.3% of Blacks are unbanked, compared with 9.3% of Hispanics and just 2.1% of Whites.

This suggests that there are traditional social barriers to banking that need to be overcome. Greater outreach and education about the benefits of banking, perhaps starting in the schools, might help.

The alternatives to banks are often costly

The FDIC report listed several of the alternatives people use instead of dealing with banks. These include:

• Check cashing services
• Pre-paid cards
• Tax refund anticipation loans
• Payday loans
• Money orders
• Auto title loans

These alternatives are often much more expensive than banks, especially if used habitually. These businesses cannot claim to be as highly regulated as banks. Alternatives not included in the 2021 survey include cash and credit cards.

The first line of the FDIC report is perhaps a fitting last line for this article, “The FDIC is committed to expanding Americans’ access to safe, secure, and affordable banking services, which is integral to the FDIC’s mission of maintaining the stability of and public confidence in the U.S. financial system.”

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post How a Lack of Trust in Banks is Costing Some Americans appeared first on Credit Sesame.

It’s a little harder to find a free checking account now than it was in the early 2000s, but they’re far from rare.

If you are comfortable with technology, you may benefit from online banking – aka internet banking or web banking. This is a fast-growing sector within banking, with analysts predicting a 13.6% compound annual growth rate between 2020 and 2027.

Online banks have much lower overheads than traditional banks with expensive brick-and-mortar outlets and high staffing levels. So you may find especially good deals in that sector.

Before you choose the type of bank you want, decide on the account characteristics you want and need. What should you look for in a free checking account?

5 features you might want in a free checking account

Consumers have a variety of needs from their bank accounts. For example, some people have high balances and want to earn interest. These people may value good interest rates on savings accounts. Other people have low balances and are not as concerned about earning interest.

You may like a personal, face-to-face service while others prefer the speed and convenience of managing their money through their smartphones. People who travel a lot often want access to tens of thousands of in-network ATMs spread across the country or the world.

Take a moment to think through the things you personally find valuable. Let’s run through five of those things that you might or might not want.

1. A truly free checking account

There’s free and then there’s “free.” It’s not hard to find a bank that does not charge a monthly fee, but some waive that fee only in certain circumstances.

Often those circumstances revolve around your account balance. If you’re the sort who always maintains a high balance no matter what, you won’t be bothered by this. But if your balance frequently dips to low levels, you need to establish what triggers a fee and how often that’s likely to happen to you.

2. Attractive yields

You pay an annual percentage rate (APR) when you’re charged interest on money you’ve borrowed. But you receive an annual percentage yield (APY) when you get interest on your investments.

Nobody’s going to get rich on the yields currently offered by banks on checking or savings accounts. But there’s no point in throwing away money by settling for less than the highest yield you can find.

Naturally, this is going to be of particular concern to those who maintain high balances. If your balance is typically in the low hundreds, you’ll be lucky to get the price of a cup of coffee from your year-end yield. So, you might prioritize other features over the account’s yield.

3. ATM fees

A free checking account is only rarely free when it comes to out-of-network automated teller machines (ATMs). You’ll likely pay a fee every time you withdraw cash from one of those.

But not all banks are equal when it comes to this. A few may cover all your ATM fees. But most will charge you. 

If you live and work close to in-network ATMs, this won’t bother you, providing you don’t travel very often. Otherwise, these fees can vary from zero to $3 a pop, depending on your bank, according to Business Insider. And the out-of-network provider typically takes its own fee. So, don’t ignore ATM usage.

If your location or lifestyle makes this important to you, check your candidate banks’ policies on ATM fees before you commit. A few even refund a limited amount of those fees each month.

4. A bank you can work with

Don’t underestimate the importance of customer service when it comes to banking. Chances are you’ll barely notice it most of the time besides a cheery smile when you visit a branch or a helpful call-center agent. 

But, if you encounter problems, the last thing you want is to spend hours on hold and dealing with call-center associates who are not empowered to help you.

It’s tricky working out which banks have great and terrible customer service. Review websites inevitably have some negative comments for any organization with millions of customers. And those with gripes are more likely to post. But try to get a feel for how big a priority your candidate banks give to caring. And check their ratings on the Better Business Bureau’s website. 

If you are comfortable with an online service, take a look at your candidate banks’ smartphone apps and other consumer interfaces. Not all banks offer as much functionality and ease of use as others. 

5. FDIC cover

All traditional banks are FDIC insured. That means that, if your bank goes under, the Federal Deposit Insurance Corporation reimburses you up to $250,000 per depositor per insured bank. 

But the FDIC warns of some financial technology (fintech) companies that offer accounts without its protection. It says, “ … non-bank companies are marketing and offering fintech apps for accounts that may not be FDIC-insured.” If in doubt, use the FDIC’s information and support webpage or call 1-877-ASK-FDIC (877-275-3342).

Some fintech companies are FDIC insured. For example, the Sesame Cash account comes with full FDIC protections. 

To sum up

Different people need different things from their free checking accounts. So, nobody can say “this is the best free checking account.” That depends on what you want.

Use this guide to determine what’s important to you. And then invest a few hours in shopping around for your perfect banking partner. Don’t forget to read How to Open a Bank Account Online.

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post What to Look for in a Free Checking Account appeared first on Credit Sesame.

Millions of Americans rely on savings accounts and checking accounts from banks and credit unions to help manage their money. Although it’s possible to function in society today with no bank account, it’s not recommended. That’s because, without a bank account, the cash and funds you keep are less safe and it’s more difficult to use, transfer, and manage your money.

It is possible to get by with prepaid debit cards, check-cashing services, and digital wallets like Venmo, PayPal, Zelle, or Apple Pay. However, opening and keeping a savings or checking account with a physical or online bank or credit union can replace or complement these strategies, making monetary matters a lot easier and safer.

Why it’s smart to open and keep a bank account

Living without a bank account is possible, but there a lots of good reasons for having a bank account.

Having an account with a bank or credit union is an essential financial tool for most people. It enables consumers to conveniently partake in everyday transactions, such as paying bills, receiving direct deposits of payroll checks and other income, transferring funds, and maintaining emergency savings.

“All of these activities are easier and more secure when you have at least one bank account,” says Amy Maliga, a financial educator with Phoenix-based nonprofit financial counseling agency Take Charge America. “If you are managing accounts responsibly, there are few downsides to having a bank account, other than possibly paying fees or having to maintain a minimum balance.”

Even though your credit report and credit score aren’t directly affected by your banking habits, maintaining bank accounts in good standing is crucial for achieving your credit goals.

“Potential lenders may review your checking and savings accounts to determine if you have the assets to pay back a loan,” Maliga notes. “Additionally, without no bank account, it’s harder to pay bills on time – which is the most important factor in building and maintaining a positive credit history.”

Shawn Plummer, CEO of The Annuity Expert, agrees.

“Your banking history is your evidence of responsible financial management. Making payments on time builds credit, showing proof of your financial health,” says Plummer.

With a bank account, you should be able to easily make or schedule electronic payments, which is a lot faster and easier than getting money orders and delivering them via mail or in person. Additionally, while it isn’t much, many savings accounts earn a small amount of interest each month based on the amount of your balance and the bank’s paid rate of interest.

Good candidates for having a bank account

You usually don’t have to meet any specific criteria to qualify for a bank account or credit union account. Virtually any physical or online bank should be able to easily open an account for you, many with no fees attached, although you may be required to maintain a minimum balance.

“Literally anyone with income and bills can open a bank account. There is no good reason not to have a bank account unless you have an under-the-table business and don’t want the IRS to find out the income you are earning – in which case, you are committing tax evasion, which is not a good idea,” Blaine Thiederman, founder and principal advisor for Progress Wealth Management in Arvada, Colorado, explains.

“Anyone over the age of 18 should probably have a bank account,” suggests Carter Seuthe, CEO of Credit Summit. “While it makes sense to wait until age 18 in most cases, it can actually be valuable for younger people who already have formal jobs to get a bank account to at least deposit their checks in.”

The consequences of living without a bank account

Having no bank account makes many aspects of life needlessly challenging and, in some cases, more costly.

“Consider that those who are unbanked must rely on check-cashing services to receive cash and use money orders or cashier’s checks to pay bills, all of which come with fees,” cautions Maliga.

What’s more, storing large amounts of cash in your home is a risky practice that can attract thieves. Keep in mind that if the money you have stashed under the mattress is lost or stolen, there’s no way to get it back.

“Without a bank account, any extra savings you have could be lost in a fire or burglary. Or, if you die, your family may have trouble finding it,” says Thiederman. “Having a bank keeps things organized and protected at no extra cost to you. What’s more, every bank account has FDIC insurance, so if the bank goes out of business you don’t have liability for the loss unless you have more in the account than $250,000.”

Another major disadvantage of living without a bank account is that there is no paper or electronic trail in place.

“You’ll have a hard time proving a money trail, so purchasing things like a home or investing for retirement will be more difficult,” Thiederman cautions.

Ponder, as well, that although it can be possible to apply and get approved for a credit card or loan without a bank account, “every single application you fill out for a credit card or other form of debt is probably going to ask if you have a bank account,” Seuthe continues. “Certain credit rating agencies and other financial services will also offer special consideration to individuals who use direct deposit for their paychecks or debt payments – all of which requires a bank account.”

Best practices when you have a bank account

Even if you don’t plan to use your bank or credit union account much, take the time to review your statements from the financial institution every month to ensure that all transactions are accurate and no fraud has occurred, Seuthe recommends.

“Also, keep your personal identifying information up-to-date, take steps to avoid overdrafts on your ac

count, such as by applying for overdraft protection, and change your banking passwords regularly to safeguard your accounts,” advises Maliga.Lastly, if you are unhappy with your bank account, avoid the impulse to drain and abandon it. If you decide you really prefer living without a bank account, make sure it doesn’t sit unused for ever more.

“Take the steps to work with your bank or credit union to formally close the account,” Maliga adds. “Opening and abandoning multiple accounts is a red flag to other financial institutions that can make it harder to continue having productive banking relationships.”

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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