The primary reason the average person patronizes the big national banks despite their high fees and low interest rates on deposits is access to ATM’s, bank branches, and mobile banking apps. In a word, it’s convenience. As we have noted on this blog previously, convenience costs money.
What drives the need for convenience?
Bad money habits make convenience necessary. Why would anyone need to have access to ATM’s and branch banks everywhere they go? Why the need for mobile banking apps that allow the deposit of checks using a smart phone? One explanation for this need is a failure to plan ahead.
Local banks and credit unions are perceived to be unable to provide the ATM, bank branch, or mobile app coverage that the national banks offer. So those who fail to plan ahead become captives of the big national banks and the convenience they offer.
Advantages of local financial institutions over big national banks for personal banking
Outside of convenience, there is little reason to use big national banks for personal banking and many reasons to avoid them, excessive fees being high on the list. With federal deposit insurance, your money is just as safe in a local bank or credit union as it is in a big national bank. A local financial institution, especially a credit union, will charge lower fees, pay higher rates of interest on deposits, and charge lower rates of interest on loans. Local banks and credit unions practice traditional banking by making loans to those in the community. This supports the growth of the local economy. Lending has become a secondary business activity with the big national banks as they gamble in the financial markets to make their money. Placing leveraged bets on the financial markets does nothing to grow the economy, and when those bets go bad, they can put the entire financial system at risk and cause the big national banks to seek taxpayer bailouts.
Freedom from the big national banks lies in once-a-month banking
It is possible to do your banking once a month and eliminate the need to use ATM’s or mobile apps entirely. If you plan ahead, you can make one trip a month to the branch of your financial institution nearest your house or place of employment and take care of all of your banking at one time. One physical banking location is all you need. You no longer require the convenience the big national banks offer. That frees you to patronize the financial institution that gives you the best overall value in terms of fees, interest rates, and service. Often that will be a local bank or credit union.
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Once-a-month banking requires flexibility
A prerequisite to once-a-month banking is to have a comfortable buffer in your checking account or a balance in a savings or money market account that can be transferred to your checking account by using phone or online banking. A comfortable buffer in your checking account gives you the flexibility to choose when you go to the bank to make deposits if your paycheck or other income is not direct-deposited. You accumulate checks throughout the month and take them to the bank for deposit all at one time.
Withdraw cash once a month
While you’re at the bank, withdraw the cash you will require for the month. Put what you need at any one time in your wallet or purse and keep the rest in a safe place at home. Pay with cash only when necessary. Use a credit or debit card (Rosa and I prefer a credit card) for most of your transactions. If you use a credit card, treat the charges like cash and pay the balance in full at the end of the statement period. Once you get comfortable with once-a-month banking, you’ll find you won’t need an ATM card. Because we plan ahead, Rosa and I have never possessed or used an ATM card.
How to create a buffer in your checking account
How do you build a comfortable buffer in your checking account if you don’t already have one? Create a detailed, comprehensive budget and make saving your number one expense item. Put all or at least part of that money into your checking account to start building a buffer. Keep two balances in your check register: One balance reflects the actual balance of your checking account, including the buffer (savings). The other is the balance you have to spend on budgeted expenses and doesn’t include the buffer (savings). When you deposit your income, add the entire deposit to your actual balance. Subtract the amount you intend to add to your buffer (savings) from the deposit amount when you add the deposit to the spending balance. For example: Say you plan to add $50 per month to your checking account buffer. When you deposit your $2,000 paycheck, add the entire $2,000 to the actual balance. Subtract the $50 you added to the buffer and add the result ($ 1,950) to the spending balance. Subtract checks and other withdrawals from both balances.
How to determine the amount of cash to withdraw for the month
How do you know how much cash to withdraw each month? Analyze your budgeted expenses. Which ones will likely be paid with cash? You will probably pay for snacks at work with cash, also coffees, sodas, parking, tolls; your children’s allowance and lunch money; food and drinks at the stadium, theater, or concert hall, and so on. How much have you budgeted for those expenses? You won’t likely have an exact figure because those expenses might be part of a larger expense category such as entertainment, but you should have a pretty good idea. Withdraw that amount for use during the coming month. In addition to the cash you anticipate spending, it is a good idea to carry some rainy day money in your wallet or purse. Keep $50 or $60 bucks in tens and twenties stashed in a separate place from your regular spending cash to use in case of an unforeseen expense.
In addition to breaking free of the big national banks, you will realize other benefits from once-a-month banking: Reduced fees, elimination of overdrafts, less overspending, less exposure to ATM crime (fraud and theft), and improved control over your finances.
K. C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based Lifestyle, Double-Dome Publications, 224 pages