Sometimes I hear people say that they would rather not put their money in a bank or credit union. Some of the reasons they give include trouble managing a checking account in the past, low interest rates, fear that creditors will take the funds, and problems with identity theft.
But the advantages of using banking services far outweigh the disadvantages. Your money is safer in a bank account, where it can't be lost, stolen, or go up in flames. (If it does, the bank or federal government takes the loss.) Your money is insured up to $250,000; so even if the bank completely fails, you will get your money back. Canceled checks or check images are proof that you paid a bill. Your check register can help you keep track of how you spend your money. And for accountholders, banks and credit unions have other free services available, such as cashing checks and notarizing documents.
Alternatives to traditional banking include things like check cashing services, money orders, rent-to-own, payday loans, car title loans, and pawn shops. Some people like these services because they are quick and easy, without a credit check. The problem is that they are usually more expensive than traditional banking services. Some even charge excessive fees, outrageous interest rates, and have strict repayment provisions. In my next blog, I'll talk more about how these non-traditional services can be "money traps."
For now, let's discuss some things you can do to make using traditional banking services easier and less expensive. First, be careful when choosing your bank or credit union. Find a place where you feel comfortable and the employees are helpful and friendly. Compare the services, interest rates, and fees at several different places before making your final decision. Be sure to include at least one credit union in your comparison.
Once you have an account, be sure you are aware of all the possible fees and avoid actions that would trigger them. Be sure to stay over the minimum balance to avoid a monthly service fee. Avoid using other banks' ATM machines to avoid third-party ATM fees. Be sure to balance your checking account each month, so that you will not bounce checks. If you are worried about creditors getting access to your bank accounts, consider keeping at least a small amount of money in a savings account. This will at least give you access to some of the banks services, while you are trying to pay off your debts.
If you would like to learn more about traditional and non-traditional banking, contact us for information about our Managing Your Money series, which is offered continually in localities throughout the Northern Shenandoah Valley. A new series starts in Winchester at the end of August. Call me at 540-459-6140, e-mail me at firstname.lastname@example.org, or call your local office of Virginia Cooperative Extension. You can download a copy of the registration flyer at the following url: http://offices.ext.vt.edu/shenandoah/programs/fcs/Files/Managing_Your_Money_Series_Summer_2011_Flyer.pdf.