People can be creatures of habit. They might drive to work the same way every day, order the same pizza toppings on Friday night, and repeatedly buy the same brand of tennis shoes. They just get comfortable with a habit because it’s what they’ve always done before.
Just as it can’t hurt to try mushrooms instead of pepperoni or to take the scenic route when driving home from work, it can make sense to at least explore alternatives to traditional banking. From fintech to mobile banking, and from money market funds to checking and savings accounts, there’s plenty to consider about the changing world of personal finance.
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Influence of Fintech
Fintech is short for “financial technology,” a term used to describe financial services with essential, integrated technology. Some forms have become so commonplace that users don’t necessarily even consider them as fintech. An example would be using a mobile payment app. Other forms of fintech may be different enough from traditional banking that they’re more clearly seen as an alternative banking solution. An example of this could be buying and selling cryptocurrency.
Besides mobile apps and cryptocurrency, other fintech examples include digital-only banks, meaning ones without brick-and-mortar branches; artificial intelligence (AI), such as those used in chatbots to answer customer questions and with Robo-advisors to help with investing; and biometric technologies that make it easier to log into apps while also providing additional security.
Some experts have suggested that the fintech industry may be one of the few that could fondly remember the housing crisis of 2008 and its impact on Wall Street because of how fintech benefited from it. During this financial chaos, some people began to trust traditional banks less. Meanwhile, some forward-thinking techies used this time to create consumer banking products that might now be labelled as fintech.
Some of the first Millennials were becoming adults around the time this financial crisis erupted, and many of them were left with feelings of institutional distrust that is likely shaping their beliefs, even today.
Here’s a deeper dive into one type of fintech: mobile banking.
Pros and Cons of Mobile Banking
Most traditional banks and credit unions offer mobile banking today as part of their services, allowing customers to check their balances and transactions online, deposit checks on their phones, and transfer funds digitally. These are perfect examples to show how some types of fintech are already widespread. What’s being discussed in this section, though, is online-only banking where there is no brick-and-mortar branch.
Because online-only banks typically don’t have physical branches, overhead costs can be lower for them—and so they can often provide perks to customers that go beyond that’s provided in a traditional bank. For example, pros of online banking can include:
• Interest rates: Reduced overhead can help online-only banks to provide more attractive rates.
• No minimum balance: Traditional banks often require minimum balances in accounts, while many online-only institutions do not.
• Convenience: Mobile banking institutions are open 24/7/365. All a customer needs is internet access.
• ATM use: Online-only banks often participate in ATM networks so that customers can use them at no cost. Or, online-only banks may instead refund ATM fees for a certain number of withdrawals.
On the reverse side, there can be cons to online-only banking. They include:
• Lack of live assistance: Online-only banks commonly have a customer service line without offering personal banking services. This means that a customer will need to set up accounts and apply for loans without the ability to talk through any challenges with a banker.
• Limited services: To help keep costs low and be able to provide higher interest rates, an online-only bank will often offer fewer services than traditional banks.
• Limited ATM access: It may be more difficult to find ATMs within the network.
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Now, What About Security?
First, if a bank that’s insured by the Federal Deposit Insurance Corporation (FDIC) or a credit union that’s insured by the National Credit Union Association (NCUA) goes under, account holders are guaranteed coverage of their funds up to the amount of $250,000—and that’s true whether the bank is online or traditional. And, both forms of banks typically offer similar fraud protections.
That said, it makes sense for consumers to take appropriate precautions when doing banking online. This includes not accessing private information on public Wi-Fi, not checking banking information on public computers, and using debit cards on protected sites only. This may help to reduce the odds of security-related problems with online banking, although nothing is ever foolproof.
Recommended: Is Mobile Banking Safe?
Alternative Banking Options
There are types of accounts that are different from the old-school savings and checking options offered at traditional banks.
Money Market Funds
Money market funds are a type of savings vehicle that was developed in the 1970s, and these funds, in general, offer relatively lower risk for investors than other types of investments. However, they also generally offer lower returns. Some funds focus significantly on corporate debt securities while others primarily consist of government securities. Some require a larger investment tailored for institutional investing, while others have lower entry points that are more suitable for individuals.
Checking and Savings Accounts
A checking and savings account combines traits of a savings account with a checking account, allowing account holders to both save and spend. Rates can be competitive while allowing the account holder to make withdrawals as needed. This is in contrast to the types of accounts that limit transactions allowed per statement cycle. Sometimes, checks are provided with checking and savings accounts. They may also come with debit cards and access to ATMs.
Switching Bank Accounts
When someone is happy with their current bank, it may be simpler to stay. If, however, that person is less than satisfied, then there may be reasons to switch bank accounts.
• Fees: Review what’s being charged, from minimum balance and maintenance fees to significant overdraft fees and more. If they’re adding up at a current bank, it may be worth researching alternative banking solutions to see if fees are similar or, perhaps, even less than what’s currently being charged.
• Customer service: How long does it take for an issue to be resolved, such as a fraudulent withdrawal? During what hours is the customer service line available? Are you currently being treated as a valued customer?
• Is a wedding or other kind of partnership in the near future? This may be a time to open a joint account.
• Is the brick-and-mortar bank branch location inconvenient, perhaps after a move? Do ATMs come with hefty fees?
• Is the current bank FDIC insured, or the current credit union NCUA insured? Are there any other safety and security concerns with that financial institution?
• Are more features available at an alternative banking choice that are of interest? This could mean mobile check deposits, reimbursement of ATM fees, overdraft forgiveness, or a more user-friendly online portal.
• Then there’s the annual percentage yield (APY). These can vary significantly from institution to institution, and it’s something worth comparing when considering a new place to bank.
How Many Bank Accounts Should You Have?
If a decision is made to benefit from alternative banking advantages, the question may become what to do with current accounts. If, for example, someone is opening a checking and savings account, is there still a need for the traditional savings account? Checking account?
The short answer is that the number of bank accounts a person maintains is an individual decision. There may be benefits when having multiple accounts, but it’s also more to juggle.
Reasons it makes sense to have multiple accounts can include:
• Having separate accounts for different purposes; for example, one savings account could be earmarked for emergencies, while another might contain funds being saved for a down payment on a house or for college expenses.
• Couples may decide they like the idea of having separate accounts as well as one for joint expenses.
• Freelancers and small business owners may want to separate personal banking from business banking.
Challenges associated with maintaining multiple accounts can include:
• The risk of overdraft occurrence.
• More banking fees.
• More logistics involved to manage them all.
If more than one bank account is open, it can be important to find out how to transfer funds from one account to the other, as needed. If all of the accounts are held at the same institution, most banks have simple procedures to set up transfers, such as ones from a checking account to a savings account. This can often be done by filling out a form. Or, this can often be done through an ATM.
If bank accounts are held in different financial institutions, the information needed to complete a transfer will typically include routing numbers and account numbers. Banks may have slightly different procedures.
Recommended: How Many Bank Accounts Should I Have?
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